Credit scores are very important to consumers, particularly when it comes to applying for a loan or a mortgage.
Despite paying rent each and every month, a tenant’s rental payment history does not currently contribute towards their credit score.
This makes it difficult for some prospective property buyers or loan applicants to get the funding they require, even though they have a history of paying large sums of money on a consistent basis.
But thanks to years of campaigning, this may be about to change in 2018...
What has been proposed?
The Creditworthiness Assessment Bill, launched by the founder of The Big Issue, Lord John Bird, proposes to render it mandatory for lenders to take rental payments and council tax payments into account when assessing potential borrowers.
If the Bill becomes law, it will be made easier for credit agencies to access tenants' payment histories and subsequently include them in all-important credit scores.
According to Labour MP Jonathan Reynolds, up to 80% of tenants' credit ratings would increase after they included rental payment history in their credit score.
The Bill was put forward after a prolonged period of campaigning by several organisations and high-profile individuals. The campaign gained significant public support on the back of an online petition calling for change to the current system.
The petition, started by Jamie Pogson, a private tenant from Plymouth, amassed over 147,000 signatures, requiring the Government to debate the issue in October last year.
So far, the Bill has received widespread support from politicians and has been endorsed by many firms working in the property industry. It has already passed a first and second reading in the House of Lords as it makes its way through Parliament.
- May 2017 – Online petition calling for rental payment history to be added to credit scores closes ahead of snap General Election with over 140,000 signatures.
- June 28 2017 – The Creditworthiness Assessment Bill is launched and passes its first reading in the House of Lords.
- August 2017 - The Residential Landlords Association reveals that over 60% of 3,000 landlords support the idea of rental payments being acknowledged in credit scores.
- September 19 2017 - MPs set October date to debate Jamie Pogson’s e-petition in the House of Commons.
- October 23 2017 - MPs debate e-petition, with Stephen Barclay confirming that he would be talking with other MPs with a view to finding a solution to the problem.
- November 24 2017 – The Creditworthiness Assessment Bill passes its second reading in the House of Lords.
- December 6 2017 – The Rent Recognition Challenge is launched, giving start-ups the opportunity to pitch for funding to create a solution which makes rental payment histories accessible.
When could it become law?
So far, the Creditworthiness Assessment Bill has passed two readings in the House of Lords.
Next up is the committee stage, for which no date has been set. After that, there will be a review stage and third reading before it passes through into the House of Commons.
The Bill will then have to pass three readings, a committee, review and amendments stage before being given Royal Assent, which is when it officially becomes law.
Lord John Bird's Bill has moved relatively quickly through the House of Lords so far and such is the cross-party, public and industry support for the movement, many commentators believe legislation regarding this issue could be formally introduced at some point in 2018.
How could this initiative benefit agents and landlords?
The main benefit of this legislation for you and your landlord clients - should it be introduced - would be that tenants will have even more of an incentive to pay their rent promptly.
Tenants who are applying for a loan or saving for a mortgage will want the highest credit score possible and will therefore be even more motivated to pay their rent on time each month.
This will contribute towards reduced arrears which means you’ll have to do less chasing and will benefit from increased cashflow.
What's more, if renters' payment history becomes more accessible because of this proposed legislation, it would be extremely useful during the pre-tenancy and tenant referencing process.
Funding available for a tech revolution
Announced in the Autumn Budget in November and launched in December, the Rent Recognition Challenge is offering FinTech and PropTech start-ups the opportunity to pitch for funding to help develop an application which will allow tenants to record and share their rental payment history.
Winning bids will be selected by a panel of experts and then whittled down to six proposals which will be given funding and support to turn their ideas in to workable products that are ready to bring to market in the future.
Applications are now open and the Government is aiming to conclude the project by October this year.
This initiative is a clear indication that the government sees technology as a key element of its plans to help generation rent and increase the nation’s tenants’ chances of owning a property in the future.