Mortgages: Eligibility — [Mr Philip Hollobone in the Chair]

Part of the debate – in Westminster Hall at 5:44 pm on 23rd October 2017.

Alert me about debates like this

Photo of Steve Barclay Steve Barclay The Economic Secretary to the Treasury 5:44 pm, 23rd October 2017

I am happy to alert the Housing Minister to the hon. Gentleman’s concerns, but more than half the homes triggered by the policy are new, so Help to Buy has helped with the supply issue. I will raise that point with the relevant policy Minister.

My right hon. Friend Mr Jones asked why the Government are not solving the problem of including rental payments within credit scores through the standing order system. I encourage any stakeholders with views about how best to encourage rental payments within credit scores to write to me about that. Perhaps my right hon. Friend and I can have a further discussion about that point.

My hon. Friend the Member for South Suffolk said that credit scores are a good predictor of credit risk, and I agree. That is why capturing a history of payment on time in people’s credit scores will help lenders make better decisions. My hon. Friend’s point is very pertinent. He also mentioned the ability of self-employed people to get a mortgage. Mortgage regulation means that the self-certifying mortgages seen before the financial crisis are no longer available, and I think he and I would agree that that is a good thing. However, some lenders will accept relatively short payment histories—12 to 18-month periods—as evidence of income, which suggests constructive engagement on that point.

My hon. Friend also mentioned lending into retirement. There is no reason why older customers could not obtain a mortgage if they could demonstrate their ability to repay. The FCA continues to consider how the financial services sector can better work with older people through its ageing population strategy, which was published in September.

Kirsty Blackman raised the issue of the cost of living: people paying rent cannot save for a mortgage. The Government have clearly taken some measures in this space, such as the crackdown on payday loans, which was widely welcomed across the House. The FCA is reviewing the high cost of credit and the car finance markets, as well as issues such as persistent debt in the credit card market. There will be further updates in 2018.

Wera Hobhouse made an intervention about not encouraging debt. That emphasises the importance of the affordability assessments for mortgages being based on a holistic view of an individual’s finances, which in a way goes to the heart of the point that drove the petition—one cannot look at rental payments; one needs to take a holistic view in order to address the point that she pertinently intervened on.

The shadow Economic Secretary, Jonathan Reynolds, raised the issue of housing supply. We very much recognise the imperative of housing supply. That is why the Government launched our housing White Paper in February, which proposed an ambitious package of long-term reform: releasing more land for homes where people want to live; building the homes we need faster; getting more people building, and supporting those who need help to buy. A suite of measures in the White Paper already speaks to many of the issues to which he referred.

Those leasing their home face the challenge of saving for a deposit while paying rent. That was the tenor of much of what was raised by colleagues across the House, and the Government very much recognise that through policies with which Members will be familiar: the Help to Buy scheme, which has helped with in excess of 320,000 housing transactions, more than 270,000 of which were for first-time buyers; and the help to buy ISA and the lifetime ISA, which both top up savings for a deposit to buy a first home.

Helping individuals to save for a deposit, however, will not address the problem on its own. That is why the Government intervened through the Help to Buy mortgage guarantee scheme, to ensure that the mortgage market works for people who rely on high loan-to-value mortgages. The Government also committed an extra £10 billion to the Help to Buy equity loan scheme.

Fundamentally, however, we also recognise the need to build more homes. Since 2010 significant progress has been made, with almost 900,000 homes built, including 300,000 affordable ones. The White Paper sought to address that and to accelerate the pace at which homes, including affordable homes, are built.

Turning to the specifics of the petition, the Government agree that a history of paying rent on time is a factor that lenders can consider when assessing creditworthiness, but it is a factor alongside others—not the sole factor to take on board. It is important to stress that mortgage regulations do not prevent lenders from taking into account rent payment as one of the criteria on which to assess affordability.

I therefore want to outline some of the opportunities that exist for connecting housing associations and others with lenders—my hon. Friend the Member for Sutton and Cheam focused on that in his remarks—and how we encourage them all to work to build the profile of those who are renting and seeking to build their mortgage history. The diverse nature of the mortgage market means that prospective borrowers should shop around to take advantage of the variety of options that are available. It is also important to highlight the reforms that took place to prevent the poor lending practices seen before the crisis. Again pertinently, my hon. Friend the Member for South Suffolk highlighted that in his remarks—it is important for us to take on board the lessons of the financial crash of some time ago.

Today, to address such concerns, the banks are required to conduct a comprehensive examination of an individual’s expenditure and income, and an interest rate stress test of that individual’s ability to make repayments. I hope that is one of the measures that will satisfy the concerns expressed by my hon. Friend. Overall, the changes are designed to ensure that the problems of the past are not repeated, but that means that the bar for getting a mortgage can be higher.

My right hon. Friend the Member for Clwyd West mentioned opportunities for making better use of rental data in creditworthiness assessments. Options are available that allow renters to ensure that their rental history is captured in the information that credit reference agencies provide to lenders. That has the potential to improve the chances of someone getting a mortgage. He correctly cited the example of Experian and the potential for housing associations and credit reference agencies to work together to build more examples than the existing Experian one.

Part of the problem is that awareness of such schemes is low. The Government would like take-up to be increased and more ways to develop such models. I am happy to discuss the issue with my right hon. Friend. It is important to do things in a way that works with and builds on existing systems and processes, to avoid increasing costs for business and making it more expensive or difficult for people to access mortgages.

In the social housing sector, I want landlords to play a more active role in increasing awareness and take-up of the existing options. In the private rented sector, as well as the social housing sector, technology and innovation should be pivotal. The open banking changes, which will come into force in January 2018, will help to open up access to our data in a secure way, leading to all manner of innovations that will make it easier to build the creditworthiness models that have been discussed.

To conclude, although it is encouraging to see the number of mortgages granted to first-time buyers, now at the highest levels since the financial crisis, it is clear that many people still struggle to make the first step on to the housing ladder. Lenders and credit reference agencies being able to access data relating to a prospective borrower’s history of paying rent will benefit both the borrower and the lender. There are already private sector solutions, some of which we have heard about in the debate. I am keen to look for ways to raise awareness of those, and to look at how we use open banking to open up further possibilities in future. We have had a very constructive debate and I look forward to having further discussions with Members in the coming weeks.