Banks / Mortgages

Scam said:
:confused:
Surely banks take into account whether or not you've paid bills on time. If those bills are direct debits they count, no?

Anyway, I posted about this a while ago. It's a new(ish) scheme that might gain some traction. Seems a bit of a hassle to set up though, which is a shame.

http://www.moneysavingexpert.com/mortgages/rental-exchange-scheme?

It's quite a travesty that paying rent on time for years and years and years isn't taken into account on a mortgage application. What better way for a bank to judge the character of the person they are lending to than one's ability to pay their housing costs without fail :confused:
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I like the look of that!
 
DAIR said:
I like the look of that!
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Scam said:
Anyway, I posted about this a while ago. It's a new(ish) scheme that might gain some traction. Seems a bit of a hassle to set up though, which is a shame.

http://www.moneysavingexpert.com/mortgages/rental-exchange-scheme?
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Whoops, completely missed that but that's exactly what I was talking about above :) Hopefully does gain some traction as it would be immensely beneficial for those renting with an ambition to buy a house.
 
paradigm said:
But to say "there is nothing to show for it" is 100% true. It's money that has no residual value, if the landlord shuts up shop or you suddenly can't afford to rent the property, you have literally nothing, no equity to show for all that outlay.

Yes, renting might have been "useful" to you, but it certainly didn't leave you with anything at the end of it. It did however help with the landlord's equity ;)
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Stop trolling. When renting you pay for a service/utility, that is the roof over your head and a home. It's perfectly comparable to other utilities such as gas, electric, water etc. From your explanation you could say people that spend thousands of pounds a year on their train ticket have 'nothing to show for it'.
 
paradigm said:
But to say "there is nothing to show for it" is 100% true. It's money that has no residual value, if the landlord shuts up shop or you suddenly can't afford to rent the property, you have literally nothing, no equity to show for all that outlay.

Yes, renting might have been "useful" to you, but it certainly didn't leave you with anything at the end of it. It did however help with the landlord's equity ;)
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In fairness. I bought a house in 2006 (I know!) for 140k spent about 30k over the next 9 years (bathroom, Kitchen etc etc and sold it last year for......£149k.

In hindsight, We should have rented

Although after saying that. Had we rented and saved that 30k when we moved out we would have had 30k (all things being equal rent/mortgage)

However in those 9 yrs, Mortgage payments brought the balance down to 104k'ish so by buying we would be up about 6k.

However had we bought 4 yrs earlier the house was 70k:eek:
 
DAIR said:
Why isn't one's rent history taken into account when deciding to approve an application?
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In what manner?

Most banks do.......check to see that you have been making your rental payments on time each month to give them an indication of your reliability to pay. Usually check back 3 months via bank statements, or a landlords reference / letter.

But I assume you mean "I pay £XX rent so why are you saying I can't afford the same for my mortgage". In which case the answer is mortgages are regulated with strict affordability criteria. Rents are not regulated. The end.
 
BDEE said:
But I assume you mean "I pay £XX rent so why are you saying I can't afford the same for my mortgage". In which case the answer is mortgages are regulated with strict affordability criteria. Rents are not regulated. The end.
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This.

There's nothing to stop someone paying 90% of their income on rent if they wanted to, besides financial difficulties elsewhere. An inherent part of credit is a check for affordability, mostly for the lenders benefit with regards to risk.
 
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Django x2 said:
This is everything that is wrong with the mindset of your average renter.
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What do you mean?

BDEE said:
In what manner?

Most banks do.......check to see that you have been making your rental payments on time each month to give them an indication of your reliability to pay. Usually check back 3 months via bank statements, or a landlords reference / letter.
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Do they really though? I've never applied for a mortgage so I've no experience but my impression was that they don't even take that into account.
 
paradigm said:
But to say "there is nothing to show for it" is 100% true. It's money that has no residual value
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That is a really stupid thing to say.

Of course there is nothing tangible, but there is also nothing tangible when you take out car insurance and not make a claim. You would not say that holiday insurance is pointless even though you know you are very unlikely to need it?

A roof over your head allows one to live and work and enjoy life whether you own it or not, it is massively important.
 
Scam said:
Stop trolling. When renting you pay for a service/utility, that is the roof over your head and a home. It's perfectly comparable to other utilities such as gas, electric, water etc. From your explanation you could say people that spend thousands of pounds a year on their train ticket have 'nothing to show for it'.
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yup... or likewise the interest portion of the mortgage, it is only the capital repayment portion(or the completely separate endowment in the case of the older generation) that leaves you with something to show for it... other poster could just as easily rent a room and pay a bit extra into a savings account/investments if having something 'to show for it' is that important to him... essentially creating his/her own mini endowment policy when renting in order to have a deposit saved up in future.

BDEE said:
In what manner?

Most banks do.......check to see that you have been making your rental payments on time each month to give them an indication of your reliability to pay. Usually check back 3 months via bank statements, or a landlords reference / letter.

But I assume you mean "I pay £XX rent so why are you saying I can't afford the same for my mortgage". In which case the answer is mortgages are regulated with strict affordability criteria. Rents are not regulated. The end.
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Well clearly it is an area that could be improved upon if they only look back 3 months! They don't need to use rent payments as a measure of affordability per say but they could be a useful indicator of how reliable you are. This is an area that is very likely going to change in future given the amount of data banks could potentially access and the models they could start building in order to better asses risk. I think there will be cases where people who fit certain criteria will be allowed bigger multiples than currently and likewise people who on paper would be allowed a normal multiple by the simpler models in place today could well be deemed risky given other spending habits. It is quite feasible that as more data is analysed there will be better ways of modelling risk available to banks - certainly in cases where you're getting a mortgage form the same banking group you've had a current account at for several years there is potential to build up a much better picture of you and in some cases give a bigger multiple than they'd otherwise give without that data.
 
The problem from a lenders perspective is how far to you go before it becomes too much - Time to assess = Slower assessment speed = Less capacity or higher costs. The more an applicant has to provide = More hassle = More chance of choosing a lender with less strict requirements.

The application process and assessment of a mortgage is already more time consuming and more costly thanks to both UK and EU regulation - To start to add in more requirements and every time something else is added which costs more, the cost of the lending to the customer has to go up.

Payment of rent on time will not have any affect on the ability to borrow more money due to regulations - It can stop you borrowing if you have been seen not to be reliable to pay on time, but that's as far as it goes. Payment of rent in the past also does not guarantee payment of a mortgage in the future. The amount which has been paid is totally irrelevant in the eyes of a lender calculating affordability in the future of the lending being agreed there and then on the income / outgoings presented.

There are already decisions made as you say, where existing customers can often obtain more than a "new" customer because of an existing relationship, which would be based on overall account behavior, but even so it can only be to a point because a certain % of a banks mortgage book has to be below a certain multiplier as this forms part of mortgage regulation now, so the higher multiples tend to be reserved for the wealthy who want huge mortgages for exorbitant London properties.
 
DAIR said:
Why isn't one's rent history taken into account when deciding to approve an application?
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Very good question, and I dont know the answer.

Applying for a mortgage is as much as an affordability test as is credit worthyness.

Not to mention it is secured credit so reduced risk to the bank, if you default they get the property.
 
BDEE said:
The problem from a lenders perspective is how far to you go before it becomes too much - Time to assess = Slower assessment speed = Less capacity or higher costs. The more an applicant has to provide = More hassle = More chance of choosing a lender with less strict requirements.

The application process and assessment of a mortgage is already more time consuming and more costly thanks to both UK and EU regulation - To start to add in more requirements and every time something else is added which costs more, the cost of the lending to the customer has to go up.

Payment of rent on time will not have any affect on the ability to borrow more money due to regulations - It can stop you borrowing if you have been seen not to be reliable to pay on time, but that's as far as it goes. Payment of rent in the past also does not guarantee payment of a mortgage in the future. The amount which has been paid is totally irrelevant in the eyes of a lender calculating affordability in the future of the lending being agreed there and then on the income / outgoings presented.

There are already decisions made as you say, where existing customers can often obtain more than a "new" customer because of an existing relationship, which would be based on overall account behavior, but even so it can only be to a point because a certain % of a banks mortgage book has to be below a certain multiplier as this forms part of mortgage regulation now, so the higher multiples tend to be reserved for the wealthy who want huge mortgages for exorbitant London properties.
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Doesn't have to be any more time consuming... rather it could be less so - if you're with the same banking group already and give them permission to look at your current account then it could be a case of them simply running an machine learning algorithm... in addition to the various standard things they look at. There certainly seems to be work out there for people to develop better models for assessing risk in retail banking. Obviously this has to work within the current framework of regulations but as this stuff advances and if they get much better at assessing risk then lobbying efforts could update regulations to reflect their new lending practices.
 
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Unless we get negative interest rates or expect a big jump in rates in the future, now much be a great time to take out a mortgage. If only properties weren't so damn expensive. 1 bed flats in my area are now a £50-60k more than they were 5 years ago.
 
Properties are expensive because rates are so low. Mortgages have never been so affordable. Cheap mortgages == more people willing to borrow, and also people willing to borrow more == prices rising.
 
dowie said:
Doesn't have to be any more time consuming... rather it could be less so - if you're with the same banking group already and give them permission to look at your current account then it could be a case of them simply running an machine learning algorithm... in addition to the various standard things they look at. There certainly seems to be work out there for people to develop better models for assessing risk in retail banking. Obviously this has to work within the current framework of regulations but as this stuff advances and if they get much better at assessing risk then lobbying efforts could update regulations to reflect their new lending practices.
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In practice, within the same bank this likely already will be looked at anyway but only to check no payments were missed, but can you imagine the reaction from consumers being asked to provide 12 months bank statements to a lender if they don't bank with them? People just won't do it - It's bad enough getting 3 months pay slips and a months bank statements from some people. You also have to have a standard policy for documentary requirements - although this includes use of your own systems if this is available to you, so you couldn't for example say 12 months for your own customers and 3 months for non-customers or similar - as this would fly in the face of the principles of Treating Customers Fairly, so if you were going to use 12 months rental payments evidenced by the DDR/STO history, you would HAVE to ask for 12 months proof from any non-customer too.

I don't think the technology is currently there to allow what you suggest, whilst it might be a good idea, we still have to rely on customers providing bits of paper from HMRC or their employers to prove income - It should be easy to setup a link to the revenue to check a self-employed persons declared income, but too much red tape prevents it.
 
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