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Should proof of rental payments be used as part of mortgage affordability?

As the rental market continues to grow, experts estimate that by 2020 there will be 7.2 million privately-rented homes in the UK; an increase of a third on the 5.4 million in 2015.

With property prices on track to hit an all-time high and a continued shortage of housing, people now spend much longer in rented accommodation, saving for a deposit, before buying their first home. According to recent research, in some cases this will be more than a decade.

Yet, when these tenants are ready to take that all-important first step, many find it difficult to obtain a mortgage from the mainstream lenders; with one recent petition highlighting the frustration faced by thousands of aspiring homeowners.

The petition, which has attracted more than 145,000 signatures, calls for rental payments to be taken into account as part of the mortgage application process.

This could be a positive step for both lenders and borrowers. It could help the applicant to demonstrate they could afford mortgage payments and, in some cases, may help them get a foothold on the property ladder, although the rental payment history would only form a part of the wider affordability checks, including income and expenditure assessments.

It would also be useful for lenders to have a more detailed credit profile, which takes rental payments into account, given the burgeoning number of people in privately-rented homes.

The Government has responded to the petition and highlighted that lenders must consider “a range of factors” when assessing mortgage applications, and that proof of on-time rental payments will not be sufficient in itself to demonstrate affordability over the lifetime of the loan.

In its response, a Treasury spokesman stated: “It is important to be aware that home ownership brings a number of additional expenses that may not be incurred when renting, including maintenance costs and buildings insurance. Before extending a loan, lenders must satisfy themselves that a borrower will be able to meet these additional ongoing costs when considering a mortgage application.”

The issue may be debated in Parliament and it remains to be seen what impact it will have on the industry. What is clear is that the petition has highlighted an important concern among thousands of private tenants, in terms of access to finance.

Some lenders such as Together, however, may already take rental payments into account as part of the overall application. Usually, we would ask for proof that rent has been maintained over the previous 12 months, and consider that as part of the application process.

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