Scott Hendry

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

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23rd March 2017

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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