In a move which could help first-time buyers climb onto the property ladder, rental payments will be considered as part of credit reports created by Experian. This is part of an initiative called the Rental Exchange, in tandem with The Big Issue, to address issues experienced by rental tenants. It is believed there are in excess of 1.2 million tenants in the UK who could benefit from this significant change in how credit reports are produced.
High street lenders
Experian has already been in contact with a number of well-known high street lenders in the UK regarding mortgage finance. So far, feedback has been extremely positive and it does look as though rental payment data will be used more and more in the future. It is estimated that a huge 79% of tenants would have seen a positive move in their credit ratings if rental payments had been taken into account in years gone by. There is also the opportunity to use rental payment history as a means of proving identity online for those looking at a variety of financial services including mortgage arrangements.
Rental Exchange and rental payments
At this moment in time more than 150 letting agents, local authorities and social housing bodies are reporting the rental history of their tenants to the Rental Exchange. If your landlord is not currently reporting your rental payments to the Rental Exchange then you can request that they do so in the future. Those renting property from private landlords can join the Rental Exchange but they would need to self-report their rental payment history via one of Experian’s trusted partners.
Recent governments have promised much and delivered little in terms of helping first-time buyers climb onto the property ladder. The Rental Exchange will prove to be extremely helpful. However, it does make you wonder why rental payments have not been part of credit reports in years gone by – at least as a measurement of financial responsibility?
There is no doubt that demonstrating the ability to pay rent on agreed dates over a long period of time can prove fiscal responsibility. We also know that if this data has been included in credit reports in years gone by many would have seen a significant improvement in their credit rating. However, how will it impact the ability to secure a mortgage?
It goes without saying that a high credit rating gives you a better chance of obtaining mortgage finance and other financial services in the UK. Although mortgage providers in the UK are still restricted by various income multiple caps it should give customers a greater chance of maximising mortgage finance within their income cap multiple range. On the downside, those who are late paying their rent will likely see a negative impact on their credit rating and ability to obtain certain financial services.
There is no doubt the announcement that credit reports will also include rental payments will benefit those who pay their rent in a timely manner. Whether it will increase the amount of mortgage finance available is debatable because of government income multiple caps. It does however demonstrate a degree of fiscal responsibility for those who make their payments on time. This can only be a positive going forward even if not enough to secure finance for that dream home.