Rent records can help with mortgage applications under new scheme
Big Issue and Experian tie-up allows details to be logged on credit histories
Regular rental payments will now be recognised by one of the main credit reference agencies to help tenants with little credit history to apply for a mortgage.
The Rental Exchange, a partnership between credit reference agency Experian and the Big Issue group, allows tenants to keep an official record of their history of rental payments. From this week that history will be displayed in Experian’s credit reports, which are used by lenders and other financial institutions to judge a person’s creditworthiness.
The inability of tenants who may have paid rent over many years to use that evidence when applying for mortgages, loans or other financial services has been a growing source of frustration for aspiring homeowners. Last year, a petition to the government over the issue attracted 147,000 signatories and was debated in parliament.
While the Rental Exchange scheme was set up in 2014 for institutional landlords such as local authorities and social housing providers, private tenants can also self-report their rental payments to the scheme, using rent reporting services CreditLadder or Canopy.
Experian said more than 1.2m tenants would now see their rental payments appear on their credit reports. It estimated that the credit score of nearly 80 per cent of tenants would improve if rents were included in their data.
Clive Lawson, managing director of Experian Consumer Services, said it was right for lenders to be able to recognise a history of regular rental payments in a similar way as mortgage payments.
“We’re already working with a range of lenders who want to use rental data to improve their understanding of a person’s financial situation so they can make higher quality decisions,” Mr Lawson said.
Ray Boulger, senior technical manager at mortgage broker John Charcol, said it was a “good first step” to making rental payment information available to lenders. “If lenders can see regular payments on the rent, that should enhance the credit score. It’s going to help some first-time buyers.”
But Mr Boulger added that would-be mortgage borrowers may still fall short when judged on the stringent affordability requirements that were put in place after the financial crisis.
Although an applicant may be able to point to rent payments as evidence of their ability to repay a mortgage at the interest rate offered, affordability tests require them to show lenders that they could afford the loan at a rate at least 3 per cent higher than the lender’s standard variable rate — a requirement that has proved difficult for many to satisfy.