The growing movement to ensure that rental payments are added to credit scores as a mandatory requirement could provide a huge incentive for the next generation of home buyers.
Automated rental payment provider PayProp says this measure, combined with the recent stamp duty cut for first-time buyers, means tenants could soon be in their best position in years to get on the property ladder.
Benefits for tenants, landlords and letting agents
Currently, credit agencies do not, as a matter of course, include tenants’ rent payment histories when calculating credit scores – missing an opportunity to make mortgage funding accessible for some tenants.
Neil Cobbold, chief operating officer of PayProp in the UK, had this to say: "Many tenants have been paying rent on time for years, if not decades. The fact that this does not carry the same weight as a mortgage payment is hard to believe.
Thanks to the rapid growth of the private rental sector, more tenants are paying higher rents. Taking cognisance of rent payments would therefore make perfect sense, encouraging the next generation of property buyers."
Cobbold says the prospect of a better credit score will give tenants even more incentive to pay their rent on time each month, something which would benefit the cash flow of landlords and letting agents, and contribute towards reducing rental arrears.
In addition, landlords and agents referencing tenants would benefit from having a better idea of prospective renters’ payment history and financial situation.
Industry campaigning again makes a difference
The move towards including rent payments in credit scores has gathered significant momentum over the last year. Following regular campaigning by several industry organisations, an online petition attracting over 140,000 signatures forced MPs to debate the issue in Parliament in October.
After the debate, Lord John Bird - the founder of the Big Issue - launched the Creditworthiness Assessment Bill which pledges to ensure that tenants' rental payment records count towards credit ratings.
The Bill passed its Second Reading in the House of Lords at the end of November and will now have to pass a Report Stage and Third Reading before passing through the House of Commons.
Despite still having to pass through several Parliamentary requirements before receiving Royal Assent, the Bill has gained significant cross-party support and is thought likely to formally become law at some point during 2018.
Government embraces PropTech with Rent Recognition Challenge
The campaign for adding rental payment history to credit scores was further bolstered by an announcement made in the recent Autumn Budget. The government has put aside £2 million for technology entrepreneurs working to develop an application that can allow the relevant data to be recorded and processed.
The Rent Recognition Challenge will provide funding to the six best proposals to help develop them into workable products.
Cobbold adds: "Recording and counting rent payments towards credit scores is a modern phenomenon and therefore it needs a modern solution. That's why this is a fantastic idea and one that shows the government is keen to embrace the PropTech revolution.”
A bright future for the rental payments industry
Cobbold says this timely development represents another step forward for the growing rental payments industry.
Cobbold concludes: "On top of all this, there are numerous PropTech firms working to make the process more transparent and effective for letting agents and their landlords.
Here at PayProp, for example, we are a bank-integrated automated payment platform and we are committed to providing agents with a smarter, easier and more powerful way to handle their lettings books.”