The growing movement to ensure that tenants’ rent payments are added to their credit scores as a mandatory requirement could help many renters become the next generation of homebuyers.
PayProp, an automated rent payment provider, believes that this measure, combined with the recent Stamp Duty cut for first time buyers, means that tenants could soon be in their best position in years to get onto the property ladder.
Benefits for landlords and tenants
Currently, credit agencies do not include tenants’ rent payment histories when calculating their credit scores – missing an opportunity to make mortgage lending accessible for some tenants.
“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,” says Neil Cobbold, the Chief Operating Officer of PayProp in the UK.
“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.”
Cobbold also believes that the prospect of a better credit score will give tenants even more incentive to pay their rent on time each month, something that would benefit the cash flow of landlords and letting agents, and contribute towards reducing rent arrears.
In addition, landlords and agents referencing tenants would benefit from having a better idea of a prospective renter’s payment history and financial situation.
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Industry campaigning makes a difference
The move towards including rent payments in credit scores has gathered significant momentum over the past year. Following regular campaigning by several industry organisations, an online petition attracting over 140,000 signatures forced MPs to debate the issue in Parliament back in October 2017.
After the debate, Lord John Bird launched the Creditworthiness Assessment Bill, which pledges to ensure that tenants’ rent payment records count towards their credit ratings.
The bill passed its Second Reading in the House of Lords at the end of November, and will now have to pass a Report Stage and Third Reading, before passing through the House of Commons.
Despite still having to pass through several Parliamentary requirements before receiving Royal Assent, the bill has gained significant cross-party support and is thought likely to formally become law at some point during 2018.
Government embracing proptech
The campaign for adding rent payments to credit scores was further bolstered by an announcement made in the latest Autumn Budget. The Government has put aside £2m for technology entrepreneurs working to develop an application that can allow the relevant data to be recorded and processed.
The Rent Recognition Challenge will provide funding to the six best proposals to help develop them into workable products.
“Recording and counting rent payments towards credit scores is a modern phenomenon and therefore it needs a modern solution,” Cobbold states.
“That’s why this is a fantastic idea and one that shows the Government is keen to embrace the proptech revolution.”
The future of rent payments
Cobbold adds that this timely development represents another step forward for the growing rent payments industry.
“On top of all this, there are numerous proptech firms working to make the process more transparent and effective for letting agents and their landlords,” he says.
Landlords, do you think it’s a positive step for tenants’ rent payments to be included in their credit scores?