Government encourages lenders to make rental payments part of mortgage affordability tests

There is no reason why lenders can’t take rental payments into account when assessing mortgage affordability, the Government said yesterday as it ruled out any legislation to help tenants looking to get on the property ladder.

MPs held a Westminster debate yesterday on a public petition backed by almost 150,000 signatories calling for “paying rent on time to be recognised as evidence that mortgage repayments can be met.”

Stephen Barclay, Economic Secretary to the Treasury, said lenders can already consider rental payments as evidence on an application as part of wider affordability assessments, but said there were also opportunities to use rental data more effectively.

He said lenders also had to bear in mind regulatory rules on stress testing and affordability assessments on mortgage applications, admitting that the bar for getting a home loan was high.

Barclay said: “The Government agrees that paying rent on time is a factor that lenders can consider when assessing creditworthiness but it is done alongside other factors.

“Mortgage regulations do not prevent lenders from taking rent into account.

“There are opportunities for making better use of rental data.”

Leading the debate, Tory MP Paul Scully, who heads the Houses of Parliament petitions committee, said a “marketplace solution” would have more flexibility than further legislation, but added that when the issue was raised on personal finance forums, there had been concerns, despite wide support for changes, about giving lettings agents “too much power” over tenants.

Scully said: “Having a more rounded view of an applicant’s financial history can lead to more informed decision making.”

He cited credit reference agency Experian’s CreditLadder scheme that collects rent on behalf of landlords and records it on a tenant’s credit report so it goes towards their credit score.

Scully had earlier backed the CreditLadder initiative but warned there were landlord concerns about who gets the rent first and who chases arrears.

The wide-ranging one-and-a-half-hour debate raised issues such as the difficulty of saving for a deposit while renting as well as the level of ground rents for home owners.

Shadow Financial Secretary to the Treasury Jonathan Reynolds, said the front bench would support the motion, adding: “There is an unremarked phenomenon of the burden of student debt and rising houses prices as well as higher pension contributions that creates a scenario that the older generation aren’t aware of.”

Responding to the debate, Sheraz Dar, chief executive of CreditLadder, said: “It was encouraging to hear that so many MPs were in support of the petition and in particular that several senior spokespeople from the Government and opposition front benches urged lenders to include rental payments in their lending decisions.

“Many of the speakers spoke passionately about how this should be achieved, and several remarked that a market-based fintech solution was the strongest solution.

“CreditLadder’s partnership with Experian means we are the only organisation at the moment who can offer smaller portfolio landlords a way to include tenants’ rental payments onto their credit profiles. This service is free and doesn’t rely on landlords to report the information.”

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