Building renters’ profiles, the key to responsible lending?

£3.6 billion. That’s the total UK private renters are paying for rent each month. When you pair this with increasing house prices, it’s not difficult to see why getting on the first rung of the property ladder is one of the biggest challenges facing the younger generation.

To give context to this figure, our research discovered the average monthly rent is £695, and hits as high as £1,250 a month in the London commuter belt. Consequently, 71% of renters have had to make sacrifices in their lifestyle to meet rental payments, while 60% have gone without a holiday or missed out on leisure activities to secure residence in their rented home.

 One third of private renters – around about 1.65 million people - can be classified as frustrated first-time buyers, who want to get on the property ladder but have struggled to raise a deposit or progress their application because of another reason.

 It’s down to lenders to be the ‘gatekeepers’ to make the judgement as to whether someone is in the right financial shape to take on a mortgage. There is plenty of evidence which shows lenders are proactively helping people to take that first step wherever they can.

Lots offer a variety of innovative flexible deals for first-time buyers, allowing them to fix rates for a number of years so they can budget with certainty in the longer term, or use a favourable tracker rate while interest rates are low.  At the same time, lenders have to ensure they always have provisions for smaller deposits and embrace government schemes to ease the process.

For lenders to be entirely fair to their customers, they need to take the responsibility of ensuring loans they make will be affordable in the long term. To arrive at the most appropriate decisions, lenders need to have the best information available about a mortgage applicant’s monthly outgoings and their track record with credit at their disposal.

 Bank accounts, loans, credit cards and utility bills all generate the profile of someone’s payment performance. But another key indicator on how an applicant might react to mortgage repayments can be drawn from the regular monthly payments they already make for their rented home.

The Rental Exchange recognises these payments made by tenants, giving them the opportunity to strengthen their credit histories as they prepare for a mortgage application. Private tenants can sign up now to have their information recorded, while more than one million social tenants have already registered. Lenders and consumers alike will be able to see rental information on Experian credit reports when it is added in 2017.

Our survey found that almost three quarters of frustrated first-time buyers want to see rental payments contribute to their report, while 83% of those looking to buy in the next five years also feel it should be taken into account.

By using all of the available information, lenders can put themselves in the strongest possible position to make decisions which is right for their business, but also the first-time buyers that are so keen to help realise the dream of owning their first home.