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

Tom Allen
Tom Allen 20 Sep 2017

Absolutely agree with you!

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RyanGeo
RyanGeo 18 Sep 2017

A sharp correction would be a less dramatic expression to use. That is already underway in certain sectors in Reading where I practice as Chartered Surveyor

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sean benton
sean benton 01 Sep 2017

Identity theft is a thread for any profession. So,people should stay alarmed. I once take help from a letting agent and came to know that letting agents are taking every precaution to prevent fraudulent...

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Mark N.
Mark N. 30 Aug 2017

We have seen a surge in instructions over August and that should continue into September too.

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Chris
Chris 30 Aug 2017

Unfortunately, all the legislation bears its force on Landlords and ignores, naively, the effect of Rogue Tenants on the ability of landlords to keep houses in repair and offer properties for rent at reasonable...

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Christian Donovan
Christian Donovan 18 Aug 2017

The write-down on house values, combined with the fall in the GBP saddled the fund?s property portfolio with a 1.4% loss in the second quarter. The shocking amount of $240 million.

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Samantha Goodman
Samantha Goodman 11 Aug 2017

Interesting point of view.

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Samantha Goodman
Samantha Goodman 11 Aug 2017

It depends on the people, some older adults decide to make a long-distance move in order to live closer to their children or settle in a place with a lower cost of living.

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brandonlee10
brandonlee10 24 Jul 2017

The financial ramifications of the triggering of Article 50, the starting gun for Britain's departure from the EU, are far from clear. Buyers will be most cautious in London, given that buying a home in...

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IrisJ.
IrisJ. 19 Jul 2017

Great advice, but may I also add that when buying an already built home, make sure you do all of the proper inspections. Most importantly pest inspection because people tend to get surprised when they

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IrisJ.
IrisJ. 17 Jul 2017

The third point is, in my opinion, the most important one. People have become too inconsiderate and careless when it comes to rented properties. If a landlord wants to protect their property, regular visits...

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cornishalan
cornishalan 10 Jul 2017

Added to the cost of purchasing these village properties are the above average maintenance costs. Particularly where the property is a listed building or requires specialist building skills such as thatching...

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