The way that first-time buyers prepare their finances before they get on the property ladder is being revolutionised and largely driven by tech. But how? There used to be two main ways anyone on an average salary could buy their first home. These were to either scrimp and save for a deposit or borrow cash off their parents. But whichever way they did it, many were disadvantaged by a poor credit report. Maybe they had defaulted on a mobile contract when they were younger, or missed a loan payment, for example.
Now, tenants can do something about this. Anyone who is saving up to buy a property can use their regular rent payments to improve their credit history and therefore their chances of getting the best mortgage deal.
And the system works in the same way a mortgage does. Anyone who pays their mortgage premiums every month on time then has their track record passed on to the big credit agencies who record it and add it to the person’s credit report.
But the same now applies to rent payments, righting a serious and long-standing ‘wrong’ in the world of finance.
How did this come about?
Until recently credit agencies were not able to add rental payments to anyone’s credit histories. But several vocal campaigns to persuade the industry to change this have had the desired effect.
For example, a petition signed by over 140,000 people last year demanded that rental payments should count towards a tenant’s credit report. This was debated in parliament, and at the same time a Bill with similar aims began its passage through the House of Lords, sponsored by Big Issue magazine founder Lord Bird.
The first credit reference agency to embrace this ‘creditworthiness’ revolution and begin helping tenants add rental payment to their credit reports was Experian.
Climb the credit ladder
Now, individual renters can register with website CreditLadder, which partners with Experian, and give it permission to ‘read’ the rental payments they make through their bank accounts. These are then passed on to Experian.
All this is made possible by the recently-launched Open Banking rules. They enable current account holders to authorise other organisations or ‘third parties’ to read payments made through their bank without compromising security.
CreditLadder’s service is a simple way that tenants can improve their chances of getting on the property ladder. And it’s free. The only investment that wannabe home owners need to make is the two or three minutes it takes to sign up to the service.
More information from CreditLadder.co.uk