First-time buyers who are currently renting and finding it difficult to get a mortgage could soon receive a helping hand from new technology designed to help them boost their credit scores.
Those renting homes often find it hard to save up for a deposit when much of their monthly income goes on rent. In some cases, rental payments can be more than the cost of a mortgage.
According to recent figures from the Royal Institute for Chartered Surveyors, rents are projected to rise by just under 2% over the next year, but a shortfall in the supply of rental properties means that over the next five years they could increase by around 15%, with East Anglia and the South West likely to see the sharpest growth.
Rent not recognised in credit scores
As well as rising rents making it difficult to build a deposit, one of the biggest challenges facing first-time buyers wanting to get onto the property ladder is that rental payments aren’t routinely recognised in credit scores, because credit reference agencies are unable to access the data.
Lenders rely on credit scores to assess an applicant’s profile and a higher score generally represents a lower risk to the lender. This could also mean they are reluctant to offer a mortgage to those who rent if they haven’t built up a good enough credit rating.
How new technology could help those renting
In December of last year, the government announced it that would be awarding £2m of funding to entrepreneurs who could come up with innovative ways to help renters improve their credit scores.
The three winners of the ‘Rent Recognition Challenge’ have now been announced. The companies have built apps which enable renters to record and share their rent payment data, such as when they’ve made payments and how much they’ve paid. Being able to harness that track record and feed it into the credit profile for a potential borrower will allow tenants to develop their credit score, which should help when they submit a mortgage application in the future.
John Glen, Economic Secretary to the Treasury said: “Monthly rent is often the biggest expense that people face. Yet most lenders are unable to take it into account when working up a credit score. Three pioneering start-ups have found a solution, and we’re giving them the investment and support they need to help millions of renters across the country achieve their dream of owning a home.”
More help for first-time buyers struggling to get on the property ladder