Mortgages: Eligibility

David Jones Excerpts

Monday 23rd October 2017 Westminster Hall

[Mr David Jones (Clwyd West) (Con)]

It is a pleasure to serve under your chairmanship, Mr Hollobone, and to follow the hon. Member for Poplar and Limehouse (Jim Fitzpatrick). I am pleased that the Petitions Committee has selected this issue for debate, and I commend my hon. Friend the Member for Sutton and Cheam (Paul Scully) on his opening speech.

The number of signatures on the petition and the impassioned terms in which it is phrased indicate people’s frustration and concern that a strong record of making rental payments is not taken into account when assessing creditworthiness. As my hon. Friend said, most young people’s ambition is to purchase a first home. They are frustrated that most mortgage lenders do not take applicants’ rental history into account, partly for the very good reason that credit reference agencies do not record rental payments.

A contract for the payment of rent is not a contract for credit. By and large, rent is paid in advance, frequently accompanied by a rental deposit. Nevertheless, a strong history of making rental payments on time is a good indication that an individual is capable of adhering to the discipline of making payments of sums due at the times at which they are due, which should be of interest to mortgage lenders. I therefore strongly support the proposition that credit reference agencies should record rental payments and take them into account. Not only might that assist in connection with mortgage applications, it would show a history of dependability that would open up other benefits, such as not requiring prepayment meters, making consumer credit easier, and better supporting tenants who wish to move into another rented property.

At present, only one credit reference agency, Experian, appears to have a model to enable rental payment history to be included in its credit scoring. As my hon. Friend has said, working with Big Issue Invest, Experian has developed a model called Rental Exchange, which allows large landlords—chiefly social landlords, but also private landlords with more than 100 properties—to report rental payments directly.

There are certain deficiencies in Experian’s scheme, however. The private rented sector is growing, and has now surpassed the social rented sector. The vast majority of private landlords have significantly fewer than 100 properties; indeed, research undertaken by the London School of Economics for the former Council of Mortgage Lenders found that only 7% of private landlords rented out five or more properties. If a landlord has fewer than first 100 properties, tenants who want to include their rent payment history on Experian’s credit score are required to pay their rent first to a company known as CreditLadder which my hon. Friend mentioned, which in turn pays the rent to the landlord and reports the payment to Experian.

This system raises a number of concerns. First, it introduces an additional artificial layer of bureaucracy into the relationship between landlord and tenant. Secondly, sums paid by tenants to CreditLadder are not covered by the Financial Services Compensation Scheme; CreditLadder’s website makes it clear that it is not regulated by the Financial Conduct Authority, although sums paid to it are paid into a ring-fenced bank account. Thirdly, it is not yet clear whether payment of rent via CreditLadder will have an effect on Experian’s credit reports. CreditLadder’s website makes it clear that it will take time for Experian to create a robust credit score based on rental data; until then, it will not use the data as part of the score. CreditLadder reasonably points out that simply adding rental payments to the report will help the lender to make more informed decisions about creditworthiness.

Despite those criticisms, it is welcome that at least one credit reference agency is beginning to record rental payments. It would be good if other credit reference agencies began to follow suit. The Residential Landlords Association, which my hon. Friend the Member for Sutton and Cheam mentioned and which is the leading private sector representative organisation, has suggested an alternative to CreditLadder’s means of recording timely rental payments, and I would be grateful if my hon. Friend the Economic Secretary took account of it.

The RLA has suggested the development of a new special rental standing order form to be used in the case of rental payments. The standing order form would enable payments to be made directly by the tenant to the landlord, and at the same time it would authorise the bank to notify the credit agencies that the payment has been made. That would cut out the cumbersome middleman procedure established by CreditLadder. It would also ensure that the payment was made directly by the tenant to the landlord, obviating concerns about financial regulation, and it would retain the link between the landlord and the tenant. I urge the Government to work with credit reference agencies, the banks and indeed the RLA, with a view to developing such a form.

I also invite the Government to work with the credit reference agencies to develop a web portal to enable individual landlords to register rental data. There would be every incentive for landlords to do so, given that in due course they would be interested in establishing the creditworthiness of future tenants, who might have reported via the same means.

This debate has highlighted a significant concern among a large section of the population who have reasonable aspirations to develop an improved credit history and ultimately obtain a mortgage on their own home. The Government were entirely right in their response to the petition to say that decisions about the availability of individual mortgage loans remain commercial decisions for lenders; of course that is the case. However, the Government would do a significant service to a large section of the public if they worked with the banks, credit reference agencies and landlords to encourage a new comprehensive method of recording rental payments, which would be of huge benefit to landlords, tenants and mortgage lenders alike.