Families hoping to get on the housing ladder may be set to benefit as lenders look for more imaginative ways to lend money to buy homes.
Last week, Skipton Building Society announced the launch of the first 100% mortgage in the UK since 2008, and now Leeds Building Society is using subscriptions services such as Netflix or Spotify to determine whether applicants are likely to pay back their loan.
Of course, there are many factors considered by lenders when assessing a mortgage application, such as income, employment status, and overall affordability and lenders will usually turn to at least one of the three major UK credit referencing agencies - Equifax, Experian and TransUnion - when considering a mortgage application. However, Leeds, which is the UK's 13th biggest building society, has become the first lender to use data on Experian Boost, and said that 7.5% of applicants should gain an improvement in their credit score.
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Credit referencing agencies are independent organisations that securely hold data about you – including things like your credit applications, accounts, and financial behaviour. But Experian Boost works slightly differently as it compiles a separate history of regular payments over the past 12 months that are not normally recorded on your credit file, such as recurring card payments for services such as Netflix, Spotify or investments and savings, such as ISAs and monthly saver accounts.
Richard Fearon, chief executive at Leeds Building Society, said of the new announcement: "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."
To benefit from today's changes you'll need to be signed up to Experian Boost, which is free to do. For now, Boost will only help if you're applying for a mortgage as a single applicant, though the building society says it plans to apply Boost to joint mortgage applications "soon".
Home ownership among young people has almost halved since the 1980s, according to one recent study, as property prices have massively outpaced wage growth. Some point to an acute shortage of new building and the desire of many older people to stay in large family houses to provide their children with an inheritance.
Frank Young, of the Civitas think-tank, said: 'We are increasingly divided between a generation who own their own homes and have benefited from extraordinary growth and generations who will struggle to pay off mortgages before they retire – if they get on the housing ladder at all.'
Last week Skipton Building Society announced a no-deposit deal that doesn't require a guarantor's backing. Aimed at renters who are struggling to save for a deposit, Skipton's 100% mortgage is only available to first-time buyers who have paid their rent in full and on time for at least 12 month and you can only borrow the equivalent of, or less than, what you pay on rent each month.
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Martin Lewis, founder of MoneySavingExpert.com, said: "Years of property-porn TV shows have spouted the idea that you must buy a house as soon as possible, as big as possible – actually, the real priority is not to overstretch your finances. Before the 2007 financial crash, banks would simply throw mortgage loans out to anyone walking past a branch window. Now we need to be more careful. So Skipton Building Society's criteria of requiring a good rental track record to prove someone can make mortgage payments is sensible, and so I cautiously welcome it, done carefully, after advice, as an option for some."
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