New credit score rules should help renters become first-time buyers
The UK government is investing £2m in a scheme to record tenants’ rental payments, potentially making it easier for renters to become homeowners.
Later this month, the Treasury is opening up a competition aimed at entrepreneurs who can create a system that lets tenants record and share their rent payment history, which could then be counted towards credit scores.
The contenders will be selected by a panel of experts from the fintech (financial technology) sector, and six successful applicants will then be granted £100,000 towards developing a prototype – three or four of which will be selected to receive additional funds to finalise their products.
At present, it is not compulsory for people’s rental payments to be taken into account when conducting credit scores and lending reference checks, and it isn’t considered when applying for a mortgage.
Stephen Barclay, the Economic Secretary to the Treasury, said: “People’s monthly rent is often their biggest expense, so it makes sense for it to be recognised when applying for a mortgage. Without a good credit score, getting a mortgage can be a real struggle.
“Most lenders and credit reference agencies are unable to take rental data into account, because they don’t have access to it. The Rent Recognition Challenge will challenge firms to develop an innovative solution to this problem and help to restore the dream of home ownership for a new generation,” he added.
Know the law
In November last year, the Crediworthiness Assessment Bill was given a second reading, and is expected to become law later this year. The law would ensure that the FCA enforces a rule for all lenders to take rental history into account when assessing creditworthiness.
The move is heavily backed by rental payment platform PayProp, which believes the change is vital in helping first-time buyers get on the ladder after renting.
Neil Cobbold, CEO of PayProp, said: “Many tenants have been paying rent on time for years, if not decades. The fact that this does not carry the same weight as a mortgage payment is hard to believe.
“Thanks to the rapid growth of the private rental sector, more tenants are paying higher rents. Taking cognisance of rent payments would therefore make perfect sense, encouraging the next generation of property buyers.”
The government’s Rent Recognition Challenge will see the new apps and systems being developed between April and October this year, with a roll-out expected shortly afterwards.
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