Should rental payments be taken into account for mortgages?

We were surprised to learn that the government has recently rejected a petition which urged lenders to consider rental payments as proof of ability to meet mortgage repayments.

There was a great deal of support behind the petition which received over 100,000 signatures (therefore was considered for debate in Parliament).

Here at Poole Townsend, we regularly deal with first-time buyers and we understand the struggles and challenges they are faced with when it comes to getting that first step onto the property ladder. Therefore, we welcome and support any developments that will give them a helping hand when it comes to securing that first home.

The petition’s creator, Jamie Jack Pogson, says he wants “paying rent on time to be recognised as evidence that mortgage repayments can be met.” He says: “Since living on my own I have paid £70,000+ in rent on time yet still struggle to get a mortgage. Unless you're getting handouts, wealthy or in receipt of inheritance it's almost impossible.”

However the parliamentary debate came to the conclusion that lenders “must consider a range of factors when assessing a mortgage application”, adding that meeting rental payments is “not sufficient in itself” to demonstrate affordability over the lifetime of the loan.

In its response, the government said: “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 ongoing costs when considering a mortgage application.

“Many lenders also use information from Credit Reference Agencies when considering mortgage applications. This is because previous customer behaviour, in terms of paying back debts, tends to be a relatively good predictor of future behaviour. Therefore if prospective borrowers have a history of good financial management it can improve their chances of obtaining credit.

“Beyond the FCA’s requirements, decisions around the availability of individual mortgage loans remain commercial decisions for lenders, and the government does not seek to intervene in these.

“Whilst one lender may be unable to offer a mortgage, being denied a mortgage from one provider does not preclude a customer from being offered credit elsewhere. There are a wide variety of mortgage products available in the UK and prospective borrowers may benefit from shopping around.”

While it’s a shame that the support of the 100,000 people who signed the petition has been ignored, we’re still hopeful that there are developments in the pipeline that will help first-time buyers in years to come. The positive side of this story is that the petition has raised awareness of the issue and has at least driven momentum towards the issue of the challenges that first-time buyers face. We would hope that this awareness will therefore lead to new ideas and solutions that will help young people wanting to buy their first home.

If you would like help and advice about getting on the property ladder for the first time, please don’t hesitate to get in touch with our friendly team or pop in for a brew and a chat to discuss your options.

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