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Could paying rent on time help you get a mortgage?

Government debates including rent in credit history

Paying your rent on time could soon help you buy a home, as the government weighs up whether rental payments should be added to your credit report.

Earlier this year, more than 145,000 people signed a petition calling for rental payments to be taken into account when you apply for a mortgage, and the government is now debating the issue.

Here, Which? looks at how paying your rent currently affects your mortgage chances, and how that could change in the future.

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Do rental payments affect your mortgage application?

Rent payments are not generally taken into account on your credit score, and one disgruntled tenant has taken matters in to his own hands.

Would-be buyer Jamie Pogson started a petition, which now has in excess of 147,000 signatures, after finding he was struggling to get a mortgage approved despite paying over £70,000 of rent on time.

While renters with a perfect payment history might be missing out, those with more inconsistent backgrounds may currently be able to benefit from this lack of transparency, as late or missed payments are only likely to lower your score if a CCJ or other claim is made against you.

That’s not to say that rental payments don’t matter at all when applying for a mortgage, as lenders will usually ask to see past bank statements – meaning a strong history of paying rent on time will usually count in your favour.

Mortgage assessments will also consider your income, expenses, deposit and overall circumstances to decide whether you can afford to meet mortgage payments.

Experian credit reports factor in rental payments

In a bid to give renters more opportunity to build up their report, the credit agency Experian last year launched Rental Exchange, and partnered with platform Credit Ladder to allow private tenants to sign up.

Private tenants who register for the service pay their rent via the platform, with payments passed on to landlords by the next working day.

Then, as payments are successfully made, Experian adds this data to users’ credit reports.

As the service is still fairly new, Experian says it may take around 12 months for rental payments to start affecting credit scores.

Any private tenant can sign up as long as their landlord or letting agent gives their consent, and while premium services are available, the basic package is free for landlords and tenants.

The Rental Exchange system is also available for landlords with more than 100 properties, and plans are afoot to work with social housing providers, too.

It’s worth keeping in mind that Credit Ladder is not covered by the Financial Services Compensation Scheme – so if the company goes bust, you’re not guaranteed compensation.

At the same time, the scheme guarantees same-day payment to the landlord if you pay before 3pm, meaning it’s unlikely to hold your money for longer than one working day.

Does parliament support the scheme?

During a debate in parliament yesterday, a number of members were vocally in favour of factoring rental payments into credit history, though many argued that other factors are equally important when assessing mortgage eligibility.

Economic Secretary to the Treasury Stephen Barclay said: ‘Lenders and credit reference agencies being able to access data relating to a prospective borrower’s history of paying rent will benefit both the borrower and the lender’.

‘There are already private sector solutions, some of which we have heard about in the debate. I am keen to look for ways to raise awareness of those, and to look at how we use open banking to open up further possibilities in future.’

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