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Rental payments and mortgage affordability

Journalist: Anna Sagar, Mortgage Solutions / Specialist Lending Solutions

ended 02. August 2022

Looking to speak to mortgage brokers about suggestion by Liz Truss to allow banks and lenders to include rent into affordability calculations.

  1. What are the barriers to this/why hasn't this been done before? 
  2. Would it benefit your customers? Are there any cases where this would have allowed them to borrow more?
  3. How feasible is that to do?

 

8 responses from the Newspage community

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Rob Peters
Principal at Simple Fast Mortgage
Rental payments can only be used towards mortgage affordability if they are recorded on a client’s credit report. A mortgage lender could then assess the ability to sustain regular payments which would be a positive indicator for those who have paid on time every month. Landlords would likely welcome this change as it would allow greater accountability but it’s unclear whether it would be as popular with tenants and their support groups as it may open up a route to eviction for those that don’t pay. Equally, just because you can afford rental payments does not mean you can afford a mortgage. Costs such as insurance, maintenance upkeep and repairs would also have to be factored into any affordability assessment. So while the rhetoric is good for increasing votes from renters, the considerations to make this viable have yet to be thought out.
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Imran Hussain
Director at Harmony Financial Services
What are the barriers to this/why hasn't this been done before? The only way this could work is if rent is tracked on a credit report; there are pros and cons to this, for example, if you pay your rent a few days late, this will impact your credit score negativly, but if it's always paid on time it adds a positive to your credit file, the major issue around why this has not been done before is because the renter Is not borrowing hundreds of thousands of pounds over a sustained period of time and paying it alongside everything else that can go wrong with property ownership alongside relevant insurance products such as critical illness cover and buildings and contents so looking at it from a simple view of rent being £600 mortgage being £500 is fine but the landlord has no responsibility to ensure you can afford the rental payments whereas a lender does and if the clients income is not enough to borrow the desired amount they won't lend and lenders will continue to go down the responsible lending route and a clients income and credit profile will determine if a lender wants to lend and I can't see this changing for the foreseeable future. Would it benefit your customers? Are there any cases where this would have allowed them to borrow more It would massively benefit first-time buyers but would not benefit as many people as we would be lead to believe due to either lack of income or deposit amount.  How feasible is that to do? The only way it would be feasible is for lenders and policymakers to sit down and create the rules they wish to follow. 
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Samantha Bickford
Mortgage and Equity Release Specialist at Mortgages with Clarity
Whilst it sounds like a great idea to help out First Time Buyers, this does make me nervous. The rental and the mortgage market needs to work much more in tandem for this to work. Rental agreements would need to go onto Credit files for the rent payments to be tracked as part of the mortgage affordability, but on the flip side who decides how much rent tenants can afford? Tenants decide what rent they are willing to pay, and currently most renters are stretching beyond their means due to the high increase in rental prices in the last 18 months. Perhaps if rent affordability was assessed, this could lead onto mortgage affordability with a proven track record. Expensive home owner responsibilities such as boiler repairs, plumbing issues, roof problems, things that can and do go wrong when you own your own property, will also need to be factored. Shall we address the real problem of affordable housing? It doesn't matter if you allow rent to be considered as evidence of mortgage affordability, first time buyers are finding it impossible to save up the required deposit as the property prices are so out of reach with empty promises for the government for affordable housing and new first time buyer initiative schemes that are needed that genuinely benefit the first time buyer , not the government.
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Jamie Lennox
Director at Dimora Mortgages
The idea is great on paper, but tenants aren't responsible for maintaining or insuring the property they live in. Boilers failing or the roof needing to be repaired are all costs that tenants don't currently need to be worried about. If issues with a property occurred it could easily lead to the reliance on credit to fund these repairs, which could quickly lead to over-indebtedness. This, in turn, could easily lead to repossessions in the long run.
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Paul Neal
Mortgages & Equity Release Advisor at First Choice Financial Services
It will go a long way to help those in rental feel like its aids their affordability however as those who rent aren't actually responsible for the property and its up keep, like many rental payments are showing up on credit files which is much better it shows lenders that renters can actually keep up with payments making them less of a risk.
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Graham Cox
Director at Bridging Hub
In principle, factoring in what someone has been paying in rent makes sense. There are absurd cases where a mortgage is declined for affordability, even though the applicant has been paying far more in rent for years. And it's not like rent never goes up either. But really, this is just tinkering around the edges. The real issue is overinflated house prices, but politicians have been turning a blind eye to that for years.
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Scott Taylor-Barr
Principal Adviser at Barnsdale Financial Management
Whilst as a soundbite it's great 'you pay £1200 for rent, so why do Banks say you can't pay an £800 mortgage' the details are, as always, far more nuanced. A landlord has no responsibility to you as a tenant to allow you to rent within your means - it's completely down to you to decide what rent you think you can afford. A lender has a responsibility (with a pretty hefty financial penalty from the regulator if not taken seriously) to make sure you can afford the mortgage payment both now and in the foreseeable future; if landlords had the same level of responsibility, I'm sure many people would not be allowed to rent the property they currently live in. The second issue is one of flexibility. If you do overextend on your rent and struggle you give notice of, in most cases, a month, and then move out to a cheaper property. If you find yourself struggling with a mortgage then reversing yourself out of the situation is a lot harder - it takes longer, it has higher costs and if the market is in a slump you may even struggle to sell at all. Which then leaves the lender having to potentially repossess the property - bad for you and bad for the lender.
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Robert Payne
Director at Langley House Mortgages
It's a logical approach and would certainly help a lot of buyers to borrow more but I believe there are too many unique scenarios for it to become a mainstream affordability test. For example a tenant could be paying their rent through an unsustainable source such as inheritance or savings. I do like the idea of it being used in conjunction with other affordability tests though to perhaps boost the level of borrowing available or maybe mitigate against credit score declines.