Across the UK house prices are rising to a point where it is becoming increasingly difficult for potential buyers to get their foot on the property ladder. Especially in London and the South East where, according to the UK government website, the average house price in May 2021 was £497,948 in London which would require an income of around £100,000* to purchase, while in the South East the average house price as of May 2021 was £350,016, which would require an income of around £70,000* (Gov, 2021). 

For many individuals, such as myself who live in London and the South East, the average house price far exceeds the income of those wishing to purchase a property- some are stuck renting and are therefore unable to save money for a deposit, while others are living with family/friends as their income is not high enough to qualify for a mortgage to cover the cost of properties within their area despite being about to afford the monthly payments. A one bed flat in Epsom could sell for around £215,000 meaning monthly mortgage repayments of around £680 for 35 years whereas to rent a 1 bed flat in the same area could set someone back around £900pcm- if a person can afford £900pcm on a rental property then surely they can afford £680pcm on mortgage repayments?

This topic was already brought to the UK government through a petition back in 2017 with the government responding that "Lenders must consider a range of factors when assessing a mortgage application. Meeting rental payments is not sufficient in itself to demonstrate affordability over the lifetime of the loan" (Jones, 2017) however as the petition was made through the government website there is a limit on characters therefore the creator of the original petition would have been unable to go into too much detail. I agree that there are a number of other costs to consider when purchasing a property such as council taxes, electricity and water bills etc however many people who rent also have to consider these costs as not every rental property has these costs included in the rent. These additional costs would be discussed between the lender and individual who is applying for the mortgage in the same manner all costs are looked at when applying for a standard mortgage, the only difference is what is being used to calculate the amount loaned- monthly spending on rent as opposed to annual income. 

As such I propose the following:

Starting from a certain date paying rent on time for a total of 2** years can be used as proof someone is able to afford monthly mortgage repayments. There can be breaks in this (for example someone moving back home for a short time, in which case the total time pauses when they move out of their rental property and starts again when they move back into one).
Payments are made on time unless the renter is able to prove they are not at fault otherwise their counter starts again. This is to account for banking errors that may cause delays in rent being paid. 
Mortgages are calculated based upon how much rent was each month, whether or not bills were included in the rent and whether the monthly repayments will cover the cost of the property by the end of the mortgage term.
As with standard mortgages the property can be repossessed by the lender should any payments be missed.
Using the two previous properties as examples- I rent the £900pcm for 2 years paying on time and in full, no bills are included in my rent. Lenders are able to see that I can afford my rent, bills and still have left over income to spend on food, transport, leisure etc. If my bills were included in my rent then lenders could contact my landlord to see how much these come to each month and subtract this amount from my rent. 

£900pcm over a 30 year period is £324,000 so in theory I could afford a property up to this value, however I decide to go for the £210,000 property and get a mortgage over 30 years means I would be paying between £500-£680 a month (depending on the lender). These are of course very basic calculations and don’t account for everything lenders look for when calculating how much to loan someone as part of their mortgage, it is being used just to help explain my suggestion further. The government and lenders will need to work together in order to enact this suggestion.  

This is to be used primarily for first-time buyers in areas where property prices are higher than average. Once on the property ladder buyers should then be able to apply for mortgages in the standard manner. I work for the NHS and work just as hard as my counterparts across the country yet cannot afford to purchase even a studio flat whereas in some parts of the country I could easily afford a small house. The government has already helped some people with their help-to-buy schemes however for others even these properties are out of their reach- having another way to get a mortgage will open up the market to a greater number of people. 

Pros of using rent as proof someone can afford their mortgage repayments

·       Increase in first-time buyers as more people are now able to afford a mortgage

·       Increase in people renting as it can now be used to help them get a mortgage- there are many people living at home with family or renting privately from family/friends for significantly less than the average rental price in their area in order to save for a deposit that may now decide to rent with a private landlord or company.

·       Higher disposable income as mortgages are generally cheaper than renting meaning more money going back into the economy in other means.

·       Many people are still going to prefer renting over purchasing- some prefer the freedom that comes with renting while others like having a landlord to deal with any problems the property may develop. 

Cons of using rent as proof someone can afford their mortgage repayments

·       Can be quite time consuming especially if someone misses a payment so has to begin their counter again. 

·       Not quite as effective in areas where rent is low- if a person is renting a property for £300pcm then their lender may not offer them more than £300pcm on their mortgage repayments. 

·       May eventually be a gradual decline in the amount of people renting, however by this point landlords should be able to find a buyer for the property as more people are on the property ladder. 

·       May be such an increase of people wanting to rent that there aren’t enough properties to meet demand. 

 

*Based upon the 4.5x annual income most lenders provide. 

**2 years is a suggestion but can be changed based upon government/lender requirements

References:

Gov UK (2021) UK House Price Index for May 2021 [online] Available at: https://www.gov.uk/government/news/uk-house-price-index-for-may-2021 (Accessed 04/01/2022) 

Jones, R. (2017) Government: rental payments aren't proof of mortgage affordability [online] Available at: https://www.financialreporter.co.uk/mortgages/government-rental-payments-arent-proof-of-mortgage-affordability.html (Accessed 04/01/2022) 

Properties used in this petition, accessed 04/01/2022:

https://www.rightmove.co.uk/properties/118322195#/media?channel=RES_LET&id=media1

https://www.rightmove.co.uk/properties/81946590#/?channel=RES_BUY