At the moment, if you own your home and pay a mortgage, a lender will take into account your mortgage payments to assess your credit score to determine how reliable you are to lend to. The higher your score, the better deal you get on loans, whether mortgage payments, car loans or even mobile phone payments.
But if you were renting the very same home, these payments, however reliably you’re making them, aren’t taken into account when determining your credit history.
The Creditworthiness Assessment Bill would change the law so that credit providers such as banks have to consider rental and council tax payments as part of your credit history.
It will help the millions of reliable renters across the country and was the brainchild of Lord Bird, founder of the Big Issue, who has already persuaded the House of Lords to pass it.
With more and more people now renting for longer and getting on the housing ladder much later, including potentially over a million people in Yorkshire, having very little credit history has big implications.
It means loan deals that cost more and mortgage deals on the worst interest rates. Renters, who tend to be young people or those on low incomes who can’t afford to buy a home, and can least afford expensive credit, end up paying the most for it.
While some young renters may have wider family support or assets that can act as a guarantor for a loan or a mortgage to reduce their risk and get a better deal, for most people that’s just not an option. It certainly wasn’t for me.
I was part of a generation that was lucky enough to be able to get on the housing ladder a lot faster than young people can today. Even so, I spent years renting before I’d saved enough to buy my first home.
And after I left university and began working, I wasn’t earning much but there were lots of things I needed to invest in, whether getting a car for my first job as an auditor, or the work clothes I was expected to wear when meeting a client – not quite the jeans and t-shirt look my student wardrobe was.
Alongside a student overdraft that I already had, in the end, with advice from my bank, I converted it all into a loan so I could get manageable payments. But it took access to credit to help me through that initial time in my career.
So for all those millions of young people today who are working hard, paying their rent on time, but with an eye on taking that crucial next step of getting their own home, I think we should make that step a bit easier if we can.
Let’s give them the credit for the financial responsibility they are already demonstrating through renting. And for other people who are just on lower incomes and unable to buy a home, or who simply just prefer to rent, they shouldn’t have to pay more for day to day credit on mobiles, or car loans for example, because a lender won’t look at their reliable rental history or council tax payments.
What the Creditworthiness Assessment Bill would do has already been trialled with lenders, social landlords and tenants. The results were impressive. For the renters on the scheme, 80 per cent saw their credit history get better once the extra information of them reliably paying rent was taken into account.
The numbers of people with arrears also dropped because tenants had a real incentive to pay rent on time in order to get a better credit score. One social landlord said the level of arrears they had after the trial was at the lowest level they had ever seen. So this is a win-win.
A lot of the time in politics, people look for the grand plans to change things for the better, but sometimes it’s easy to miss the simple changes that can make a big difference.
The Creditworthiness Assessment Bill isn’t about encouraging people who can’t afford it to borrow and be reckless.
It’s about a level playing field between homeowners with a mortgage and renters to access the credit that helps us all get on with our lives.
I’d never have been able to ever buy my home without my first mortgage. Let’s smooth the way for people today so they don’t have to pay through the nose for the same chance just because they’ve had to rent for longer.
This sensible change is long overdue. It has cross party support, and I hope that in the coming months the House of Commons will find the time to have the vote we need to put it into law and help 15 million renters across the country.
Justine Greening is a Tory MP. Born in Rotherham, she’s an economist and the former Education Secretary.