Subscriptions to the likes of Netflix or Spotify could contribute to helping struggling first-time buyers get a mortgage. A new partnership between Leeds Building Society and credit information company Experian should allow extra evidence of a borrower’s good financial track record to be factored into lending decisions.
It means the previous 12 months of regular debit payments, such as council tax and subscriptions to digital entertainment services such as Netflix or Spotify, can now contribute to credit scores and be factored into mortgage applications to the Society. Open banking technology, which allows people’s information to be shared securely, sits behind the initiative.
Open banking is used to link the borrower’s current account payments to their credit score. This is then connected to Leeds’ lending systems.
Open banking is an initiative that allows consumers to share their bank transactions with Financial Conduct Authority-authorised third parties via a secure connection. Data cannot be shared via open banking without the consumer’s explicit consent.
Leeds Building Society said that during testing, 7.5% of Society applicants would have gained an improvement in their credit score by using Experian Boost. Leeds is not the only lender to have unveiled an innovative way to potentially accelerate some first-time buyers’ dreams of homeownership.
On Tuesday, Skipton Building Society announced a new zero-deposit mortgage deal aimed at renters who aspire to be first-time buyers. Skipton said tenants aged 21 and over may be able to take out mortgages at between 95% to 100% of the value of the property they want to buy.
In return, they will need to demonstrate a strong track record of paying their rent, with evidence of a minimum of 12 months of rental history, as well as passing affordability and credit checks. The Skipton track record mortgage is a five-year fixed-rate product, with a rate of 5.49%, and the maximum mortgage term is 35 years.
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Leeds Building Society has more than 800,000 customers and last year it helped 18,000 people onto the housing ladder. It lends up to 95% of the value of a home both for outright purchase and shared ownership mortgages, applications for which will also be eligible for boosted credit scores.
Last year, Leeds stopped lending on residential second homes to focus on first-time buyers.
Richard Fearon, chief executive at Leeds Building Society, said: “This will particularly help younger borrowers, first-time buyers and anyone on lower incomes who face the toughest challenge to prove their ability to repay.
“Often through no fault of their own, these groups can struggle to build a good credit score because they need to spend most of their earnings on rent and other regular payments. Indeed, the vast majority of existing Boost users are renters.
“Housing is at its least affordable point since our founding year in 1875, a sad indictment of decades of inertia over the UK’s housing crisis. But we will continue to find ways we can help and put homeownership within reach of more people, just as we have for almost 150 years.”
Sigga Sigurdardottir, managing director, consumer services at Experian, added: “Our partnership with Leeds Building Society further supports Experian’s mission to improve financial inclusion for consumers. As many people across the UK face barriers to homeownership, we’re delighted that Boost users can now use their boosted scores to help them get on the ladder, making that dream of home ownership more accessible for people across the UK.”
Aside from a credit score, there are other factors considered by lenders when assessing an individual’s mortgage application, such as their income, employment status, and overall financial stability. Experian Boost can provide an additional layer of information, potentially tipping the scales in favour of some borrowers who may have otherwise been rejected.
The option to include Experian Boost in credit scores with Leeds Building Society currently relates to residential, single-applicant mortgage applications only. Dual applicant Boost scores are due to go live soon, Leeds said. Not all credit scores will increase with Boost, but it will never cause a credit score to go down, those behind the initiative said.
Leeds Building Society said customers can opt in and out of the Boost service at any time.
