Experian is adding rental payments to its credit reports for the first time, a move that could help thousands of first-time buyers get a mortgage.
Over 1.2 million tenants can see their rental payments on Experian’s credit reports as part of Rental Exchange, an initiative developed in partnership with The Big Issue to help tackle the challenges faced by rental tenants.
Experian says it has already spoken to a number of big high street lenders who are interested in using the information to help assess mortgage applications.
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Clive Lawson, managing director of Experian consumer services, says: “Tenants pay a significant amount of money each month for the roofs over their heads, so it’s right to recognise these regular payments in a similar way as mortgages.”
Experian says the move will prove significant in helping lenders assess mortgage affordability and in turn help more first-time buyers get on the property ladder.
It also believes that it will help people who have trouble accessing financial products improve their credit score.
Analysis of user data by Experian has revealed that 79% of tenants would have seen a noticeable improvement in their credit score when lenders take rental data into account.
It also shows by adding rental data to credit reports the proportion of tenants who can prove their identity online increases from 39% to 84%, broadening the range of financial services available to them.
Mr Lawson adds: “Adding rental payment data to credit reports would help millions of people prove their identity so they can access online services and mainstream finance.
"We’re already working with a range of lenders who want to use rental data to improve their understanding of a person’s financial situation so they can make higher quality decisions.”
More than 150 social housing providers, local authorities and letting agents are reporting data into the Rental Exchange.
How can you join the Rental Exchange?
If you are a council or social housing tenant, just ask your landlord to report your rental payment data to the Rental Exchange.
If you are a private tenant with a large landlord or letting agent then ask them to report your rental payment data to the Rental Exchange.
Alternatively, private tenants can self-report their payment data through one of Experian’s partners, such as CreditLadder and Canopy.
Mortgage lender’s credit score not the same as one from credit reference agencies
Rising house prices and deposits are making it increasingly difficult for first-time buyers to get a foothold on the housing ladder.
The introduction of the Mortgage Market Review in April 2014 also means anyone taking out a mortgage is now subject to stricter lending criteria to check that they can afford to repay.
Lenders take into account a number of factors when assessing a mortgage, including a borrower’s income and expenditure.
This has led to increasing calls for lenders to take into account rental payments when assessing the affordability of buyers.
Last year, an online petition calling for paying rent to be used as proof people could afford a mortgage gathered nearly 150,000 signatures.
Making regular payments by rent could help buyers prove to lenders that they can spend a higher proportion of their income on property as well as make regular payments.
Nick Morrey, product technical manager at mortgage broker John Charcol, says: “The more positive information recorded by a credit checking agency the better their credit score, but will lenders consider it?
“A lender’s credit score is not the same as the one from credit reference agencies. So, although having a more positive payment history cannot be a bad thing, it will not automatically mean that a lender will increase the maximum loan size to an amount whereby the new, larger loan has monthly payments similar to the monthly rent being paid.
"This is what people would like to see, but it cannot happen at present since the lenders are prevented from exceeding their income multiple caps imposed by the regulators."
He adds: “Having a stronger payment history record is likely to increase the credit score a lender applies. This increased score may mean the applicants can borrow an amount closer to those income multiple caps.”