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Rental payments and affordability

Journalist: Anna Sagar, Mortgage Solutions / Specialist Lending Solutions

ended 22. September 2022

Looking to speak to mortgage brokers about including rent payment track record in mortgage affordability/lending decisions. 

  1. Why have lenders' been reticent to include this in affordability?
  2. What would be the benefits of including it in affordability? Are there cohorts that would benefit more from this? 
  3. Are there any disadvantages or potential downsides?
  4. What are the barriers to putting this in place and how feasible is it?

 

4 responses from the Newspage community

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Editor
Imran Hussain
Director at Harmony Financial Services
I would love to see rental payments be towards some consideration for a mortgage, especially as I help first-time buyers daily, but the biggest issue is how to track those rental payments accurately Experian did launch The Rental Exchange to try and make this happen but if you rent from a private landlord it may be harder to track and there is a slight issue with this if you pay rent late every month this would also hammer your credit file, the main reason it's not used towards affordability is purely down to stress tests used by lenders and also others costs of home ownership, maintenance and general upkeep as if rents rise tenants can decide to move out by serving notice with a mortgage there is no such luxury, the other thing to factor is people who may over borrow for example in the last 18 months we have seen rates go from 1% to most 2 and 5 year fixed rates now averaging over 4% and likely to hit over 5% as an average by the end of the year so anyone who is barely getting by with their current mortgage payments will be in for a shock when their current deal comes to an end.
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Rob Peters
Principal at Simple Fast Mortgage
Lenders can't realistically take rental payments into account unless rental payment data is registered at dedicated bureau where it could be checked centrally. Much the same as credit agreements are registered at credit reference agencies. However, my understanding is that the associations that represent tenants were against this move as they did not want missed rent payments to go against tenants when applying for credit or a mortgage. It's a two way street.
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Jamie Lennox
Director at Dimora Mortgages
The big issue with going down this route is a tenant isn't responsible for maintaining the property. Therefore being able to just afford the rent is not enough to demonstrate the ability to pay a mortgage. You also need to think about stress testing, just because it could be affordable now as interest rates increase how soon would it be before people then become overstretched financially? Typically if someone's finances are going to become stretched it could be due to a recession. If you're renting it is far easier to serve notice and find an alternative property to live in, than having to sell a property in a market where housing demand and prices could be reducing. The concept would work if rates never changed and there was never a recession, but these two can't be guaranteed and therefore I don't see this as a viable solution in the long run.
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Scott Taylor-Barr
Principal Adviser at Barnsdale Financial Management
Proof of historic rental payments would not impact affordability in any way; the same as historic mortgage or loan repayments do not features in the affordability modelling. Where these track records of payments can and do help is with credit scores - so they help a lender decide if they should lend to you, rather than how much they should lend you. The issue with including rental payments in this is a lack of data; rental payments are not included within credit bureau information (which lenders use to generate their individual credit scores) and I cannot see, unless forces landlords to submit data, why that would change. Rental history would then have to be assessed manually, something many lenders simply do not have the resource to do.