Home lenders in Britain should take rental payments into account when making lending decisions, according to Experian.
Research from the firm has revealed that rental rates are rising significantly, whereas monthly mortgage payments are dropping.
During the third quarter of 2015, private tenants in Britain paid more for their rental accommodation in 57% of districts, in comparison to the same period in 2015.
At the same time, monthly mortgage payments expected to be paid by first time buyers has fallen in almost two-thirds of districts. This is on the assumption that their loan was for 90% of the property on a two-year fixed-rate mortgage deal over 25 years.
The amount of money tenants pay for their accommodation is either above or within 10% of the monthly payments that they could expect to pay for a mortgage in 27% of UK districts. Experian’s research suggests that if these renters were able to raise a deposit, a large percentage of the 4.3m private rental tenants in Britain would fine mortgage payments manageable in line with their current rental outgoings.
Data from the investigation shows that Scotland is home to six of the ten districts where rental rates are higher than mortgage payments by the biggest margin. In addition, Manchester, Salford and Hull also offer the most favourable conditions for tenants to get onto the property ladder.
Jonathan Westley of Experian, said: ‘What our research shows is that while a mortgage is a major ongoing commitment, renters often have a track record of making monthly payments which are often similar to what they might pay on a mortgage.’
The Mortgage Market Review has already seen lenders subject to stringent checks assessing the suitability of candidates to keep up with their mortgage payments. However, Experian argues that by taking rental payments into consideration, lenders can get a better overall view of a borrower’s track record.
Mr Westley continued by saying: ‘Lenders take more into account than simply the amount you have raised for a deposit and what multiple of your earnings you are looking to borrow. The responsibility of ensuring mortgage payments are affordable for borrowers in the long term is one lenders take seriously.’
‘They want to get a complete picture of a would be home owner’s financial commitments and see a strong track record of making regular payments. This helps lenders to understand how a borrower would manage mortgage payments now and in the future,’ he concluded.