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What will the booming rental market mean for lenders?

The UK’s rental market is booming. The number of new properties being listed for rent each quarter has been growing at a much faster rate than the number of properties being listed for sale during the same period.  The increasing supply of properties available for rent has also been helped along by the rising numbers of buy-to-let owners and increased activity from international real estate investors.  Furthermore, rental prices are growing at a much slower rate than house prices, so we are likely to see this more European model of home ownership continue to grow for a while yet.

Our analysis of the 2011 Census data for England and Wales supports this societal shift and reveals that households renting privately over the previous ten years increased to 3.6million and accounted for 15 per cent of all households in these areas.  The largest swing from ownership to private renting has overwhelmingly been in the South East of the country.

Even more significantly, the analysis revealed a growing split in property ownership between the younger and the older populations.  The number of homes in England and Wales owned by people under 35 years old fell from 2.2 million to 1.4 million between 2001 and 2011, while the number of under-35s in private rented housing rose from 1.1 million to 1.9 million.  Figures published as part of the English Housing Survey last year, further revealed that there are around 3.8 million social housing rentals in the UK. 

So, with over 7 million households now renting and representing over 30 per cent of UK households, the structural shift in the property market will be become a significant one for the banking and financial services sector.  This is particularly pertinent as lenders are under pressure to better understand the needs and circumstances of people applying for lines of credit, as well as treat them fairly.  In order to lend responsibly, but also prevent fraud, they need the most complete view of customers’ financial commitments and payment history they can get.

Historically, people who have rented their homes rather than owned a home through a mortgage have not seen their biggest regular expenditure recognised as an indication of their creditworthiness.  This applies even more significantly to millions of social housing tenants. Despite paying this large sum of money every month and on time, this information has not been taken into account in credit reports.  Meanwhile, mortgages holders enjoy the benefits their regular repayments afford them in terms of a positive impact on their credit reports.  Our analysis shows that people who have rented their homes for many years are just as committed to paying their rent every month, yet their positive payment behaviour is not factored into decisions about lending to them.

Information about regular rental payments could, therefore, provide the evidence needed to show that most people are responsible consumers, even if they’ve been off the credit radar. The use of rental data has also been recognised by the Information Commissioner’s Office as providing significant benefits to low income households.  It will open up access to credit for millions who can afford it but have until now been excluded.  A better understanding of people who rent could also open up more opportunities for lenders who are looking to grow and find potential new customers.

Later this year, lenders will gain access to this rental payment information, thanks to the Rental Exchange, which has been developed in partnership with Big Issue Invest and is a route for this data to be incorporated into credit reports.

This additional information will provide a significant boost to responsible lending capability. Our initial analysis has already shown that 93 per cent of social housing tenants alone will see a credit ratings boost.  With a truer picture of existing commitments lenders can better understand levels of indebtedness and affordability, and gain a new insight into potential customers they had little or no information about before.



Comments: (2)

A Finextra member
A Finextra member 10 July, 2014, 14:26Be the first to give this comment the thumbs up 0 likes

I think rental history can be a good indicator of risk.  Would the banks be the abiter controller of timely payment information?  How will the payment information be regulated?  I would be concerned if the resonsibility for reporting timely payments were left to "interested parties".  There are a great many mom-and-pop and unprofessional property managers in New York, San Francisco, and London.  The potential for retributive penalties and sniping is high. 

A Finextra member
A Finextra member 23 July, 2014, 16:25Be the first to give this comment the thumbs up 0 likes

We are committed to data quality in all the work we do, and as such we are regulated, but our customers also expect us to deliver the highest standards.  


In the UK, the files we receive from landlord/agents will be put through over 200 rigorous data quality checks prior to loading. These checks will be managed by our own staff experienced in controlling credit data.  Data will be compared to previous month’s submissions to identify any quality issues.  Where suppliers do not meet our criteria for quality, they will not be included in the scheme.  When notified by either party that data is disputed Experian will take steps to flag the rental payment record as Disputed and suppress the data.  Also data provided will be verified with the tenant and where disputed prior to submission will not be loaded.


In the US, where we collect rental payment data from property management companies and individual landlords (via electronic rent payment services), the data is regulated by the Fair Credit Reporting Act.  It requires that all furnishers of data comply with certain obligations related to data accuracy, updating information and responding to consumer disputes.  


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