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

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

The rental market continues to grow, with experts estimating that there will be 7.2 million privately-rented homes in the UK by 2020, a huge rise on the 2015 figure of 5.4 million.

With the continuing shortage of housing, and property prices in the UK reportedly on track to hit an all-time high, many people now spend longer periods of time, and money, in rented property as they save for deposits - in some cases for more than a decade, according to recent research.

Yet, when these tenants are ready to make the leap onto the property ladder, many struggle to obtain finance from the mainstream mortgage lenders; with one recent petition highlighting the frustration faced by thousands of aspiring homeowners.

The petition, which gathered over 140,000 signatures and has received a response from the Government, calls for rental payments to be taken into account as part of the mortgage application process.

So would this be a positive step? It could help the borrower to demonstrate that they could afford the mortgage repayments, and in some cases might help them take that all-important first step on the property ladder, although the rental payment history would only form a part of the wider affordability checks including income and expenditure assessments.


For lenders it would be useful if there were a more detailed credit profile available that took rental payments into account, given the growing numbers in the private rental sector.

However, as the Government noted in their response: “Lenders must consider a range of factors when assessing a mortgage application. Meeting rental payments is not sufficient in itself to demonstrate affordability over the lifetime of the loan.

“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 on-going costs when considering a mortgage application.”

Whether or not the issue will be debate in Parliament remains to be seen, but there’s no doubt that the petition has given voice to a growing concern amongst renters and highlighted an important issue.

Some specialist lenders, like ourselves, do consider rental payments as part of the application process. Typically, we would ask for proof that rent has been maintained over the past 12 months, and look at that within the overall application.

With the numbers of renters on the rise, and landlords continuing to invest in buy-to-let due to the clear demand - and in spite of the various tax changes - the rental sector is a market that’s set to remain in the property spotlight.

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Comments

  1. jared townsendjared townsend05 April 2017 17:44:37

    It'll be interesting to see how & if the Government's asset sale regarding mortgages helps

    Reply to this comment

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Latest Comments

warren
warren 26 Apr 2017

You're very welcome Mary! Glad you enjoyed them :)

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Mary Ward
Mary Ward 26 Apr 2017

Thank you for the wonderful ideas. First impressions can make or break a deal. It's sadly that many homeowners drop the kerb to create an off-street parking space.

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Tony Gimple
Tony Gimple 14 Apr 2017

I'm not at all surprised that so many landlords are still confused about what the tax changes really mean and how it will affect them. In particular, the blind rush to incorporation is leaving landlords...

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MH
MH 13 Apr 2017

You are right that the bank holidays are going to be spoiled in looking for the properties. But people who want to sell their property and looking for the better relocation, they can get benefits of this...

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bnellyb
bnellyb 08 Apr 2017

There will be an exodus of private landlords over the next 5 years as tax changes take effect, private landlords provide an important service to the rental market, why do housing associations and councils...

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Fred Cassman
Fred Cassman 07 Apr 2017

"Make it look like you are at home": often people forget this and share on facebook their location!

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jared townsend
jared townsend 05 Apr 2017

It'll be interesting to see how & if the Government's asset sale regarding mortgages helps

view article
SecomTech
SecomTech 04 Apr 2017

...and not one mention of the rules on PERMITTED DEVELOPMENT!!! Unless you have studied the plans you will not know...It's probable a high proportion would not need planning permission...BUILDING Control...

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Jonathan
Jonathan 03 Apr 2017

That's a very interesting study indeed. There is no doubt that new services and web apps such as Wonego.com in the UK or Roomster in the US will change the way people look for a flatmate, and that tenants...

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MBM Homelets
MBM Homelets 23 Mar 2017

Although this is a very positive step, there is little or no guarantee of the standard of workmanship employed by the tenants. We have had experience of a professionally decorated property being ' painted'...

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ajay
ajay 21 Mar 2017

How is the "robust evidence" looking now?

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NathanG
NathanG 20 Mar 2017

I've been watching the series so far and am completely baffled by the cases that were presented. Though, I don't think that we can protect ourselves from every scam possible - it will just make the scammers...

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