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

Oliver Conway
Oliver Conway 18 May 2017

Making a neat inventory is a good idea, but if the seller is not willing to provide it, can the buyer demand it?

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Bertrand
Bertrand 17 May 2017

First step to nationalisation of the private rented sector IMHO. Nanny state poking their noses into things yet again. I object, as a decent landlord, sometimes having to deal with some pretty awful tenants,...

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Izzy
Izzy 16 May 2017

This is such a great a post. I love the detail you've gone into. It's a very useful article for helping those who are looking at deciding which sector they would like to go into! When I first started investing...

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paul burnham
paul burnham 30 Apr 2017

Jeremy Corbyn's pledge that a Labour government would build 500,000 new council houses must electrify the general election campaign. Reliance on markets and the profit motive has brought huge housing-related...

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CommercialTrust
CommercialTrust 28 Apr 2017

Sadiq Khan?s announcement of an online database of landlords and letting agents who have been convicted of housing offences, appears on face value to be a variation of the already implemented Database

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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

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