Tenants – how your rental payments can help you get a mortgage
Being able to get a mortgage to buy a property usually means proving to a mortgage lender that you can afford to repay the loan over time - with their decision based largely on your financial status, your existing and potential outgoings and, importantly, your credit score – and that’s why, for tenants, paying your rent in full and on time can really help. Here we explain why.
What is a credit score?
A credit score is a number that helps a lender decide the risk that they are prepared to take when you borrow money from them - the higher the number, the greater risk they will be prepared to take.
The credit score is based on past and present behaviour i.e. what other credit applications such as credit card or hire purchase agreements you’ve made, what they are, how many have been accepted or rejected, how much you owe and whether you’ve been successful in paying them off or have defaulted in any way. You can obtain a credit score free from credit reference agencies like Experian and Equifax.
How do my rental payments affect my credit score?
By paying your rental payments on time and in full, you are demonstrating that you can pay your bills and some credit reference agencies, like Experian, will ensure that this is taken into account in your credit score – as mortgage payments are for homeowners.
How do I know my rental payments are being taken into account on my credit score?
Unfortunately there’s no law that states that rental payments have to be taken into account but there have been some initiatives launched over the years to include them. The Rental Exchange, for example, is a free initiative that tenants (or their landlords) can sign up to which can hold information about your rental payments and which is then taken into account by Experian in your credit score.
Is now a good time for tenants to buy?
It could be. Boris Johnson announced in a virtual Conservative Party conference in October 2020 that the government will turn Generation Rent into Generation Buy with the introduction of 95% mortgages. It means there could soon be more mortgage loans available that would only require a deposit of 5% of the value of the property – which are becoming increasingly rare to find. More details are due to be announced soon but with a stamp duty holiday also currently running until the end of March 2021, an extension to the Help to Buy scheme (and a new scheme announced), as well as some tenants seeing their rents rising, it could be a good time to make a move now.
Where can I go to for help?
If you’d like to speak to someone about securing a mortgage, and how you might improve your chances of getting one, why not contact Embrace Financial Services (EFS) who can put you in touch with a local Financial Consultant who will be happy to help. EFS work in partnership with Your Move and have already helped a vast number of homeowners to secure their dream home.
For more details about the Rental Exchange access the Experian website at https://www.experian.co.uk/business/consumer-information/consumer-credit-management/rental-exchange/
Blog updated 26/11/20
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
Embrace Financial Services usually charges a fee for mortgage advice. The amount of the fee will depend upon your circumstances and will be discussed and agreed with you at the earliest opportunity.