For millions of members of ‘generation rent’, getting on the property ladder is simply a pipe dream. By the time they’ve paid their rent, organised their outgoings, and put food on the table, there’s little left to play with. Even for those who manage to scrape together the bare bones of a deposit, they may lack the established credit rating needed to qualify for a mortgage. This, despite the fact that they’ve responsibly paid their rent on time for years—maybe even decades.
It is a frustrating situation to find yourself in, but a surprisingly common problem nonetheless. To such an extent that a recent petition saw more than 145,000 people demand a change in legislation, which would see regular and timely rent payments considered on a person’s credit report, If the initiative was to go ahead, this would mean a good track record of paying your rent could help you qualify for a mortgage.
With the petition having exceeded the 100,000 signature threshold by a significant margin, the issue is being debated by the government at an official level.
The effect of rental payments on mortgage applications
When you sign up for a credit service or hire-purchase agreement of any kind, your subsequent actions are recorded on your credit score. If you keep up with the payments and repay the balance as agreed, your credit score improves. If not, it takes a hit.
Nevertheless, the single largest and most important outgoing in the lives of millions has no such effect at either end of the scale. With rental payments, the responsibility or otherwise of the tenant isn’t normally taken into account. It doesn’t have any impact on your credit report and won’t be considered by the vast majority of mortgage lenders.
This bizarre imbalance is what led campaigners to begin taking the petition seriously. It was started by one responsible individual who’d paid no less than £70,000 in rental payments on time. Jamie Pogson was bemused as to why this clear demonstration of responsible financial behaviour made no difference whatsoever to his would-be mortgage application.
Particularly when given how the slightest oversight—even applying for a line of credit and being refused—can wreak havoc on your credit score.
Is it worth keeping a clean sheet?
Even if you’re able to provide concrete evidence of your responsible history of on-time rent payments, there are no guarantees the typical High Street lender will be interested. Nevertheless, it’s worth remembering that the one thing every major lender does when considering a mortgage application is inspect the applicant’s bank statements.
They want to see what’s going out and what’s coming in, which may include how regularly (or otherwise) you are paying your rent. Even if it has no bearing on your credit score, it could still have an impact on the way your financial history and current circumstances are perceived.
Hence, it’s a good idea to keep a clean sheet with your rent payments, even if it doesn’t necessarily boost your credit score. Whether the government decides to bring about new legislation remains to be seen, but for the time being at least, it’s a pretty painful blow for common sense and the responsible financial activities of millions of tenants across the country.
Alternative options…
If a traditional mortgage is out of the question for any reason, there are always alternative options to explore. From subprime mortgages to flexible secured finance to bridging loans and so on, a conventional mortgage may not be the only option—or even the most affordable option.
If in doubt or struggling to qualify, speak to an independent expert for advice on the alternative options available. Work out the costs of a mortgage using our UK mortgage calculator.