Keeping up with monthly fees for Netflix or Spotify could now help aspiring homeowners get on the housing ladder, as one building society will allow customers to use regular direct debit payments to help prove they can afford a mortgage.
Leeds Building Society will enable prospective home buyers to have their last 12 months of direct debits taken into account as part of affordability checks.
It means payments to subscription services, as well as other regular commitments such as council tax or a gym membership, will be counted towards their credit score and could be used as extra evidence of a good financial track record.
Netflix and bills: Evidence of regular direct debits could help borrowers get a mortgage with Leeds Building Society, as the payments can now be counted towards affordability tests
Other factors considered by lenders when assessing a mortgage application include income, employment status and overall financial stability.
> Read our guide to getting your first mortgage and climbing the property ladder
Leeds BS is offering the service – known as ‘Experian Boost’ – as part of a partnership with the credit agency Experian.
Borrowers will need to agree to share their financial information via open banking in order for the payments to be counted.
The information is shared with Experian via a secure connection and is then connected to Leeds’ lending systems where it can be viewed by mortgage assessors.
At the moment, only those applying for a mortgage alone can use the service. Leeds BS said joint applicants would be able to use these ‘boost scores’ shortly.
The extra information provided could potentially tip the scales in favour of some borrowers who may have otherwise been rejected.
However, evidence of regular direct debits will not improve everyone’s ability to get a mortgage.
Leeds Building Society said that when it tested the tool, 7.5 per cent of applicants would have gained an improvement in their credit score when using Experian Boost.
David Hollingworth of broker L&C mortgages said: ‘First time buyers face so many challenges in trying to buy that it’s encouraging to see lenders looking for ways to remove some of the hurdles. If saving a deposit and being able to borrow enough to meet high house prices wasn’t a big enough task, many will be worried that their credit file will be too thin to meet the lender’s requirements.
‘Being able to draw on the track record of managing regular payments over time could help lift the credit score and can only help more qualify for a mortgage.
‘Anyone with concerns about their ability to meet lender criteria should also seek advice which will help to match up the right lender for the individual circumstances.
‘With more products looking to help first time buyers establish a foothold in the market they may find that there’s more options than they feared.’
Nicholas Mendes, mortgage technical manager at broker John Charcol, added: ‘Subscription based products have now become norm in how we spend, Netflix, Amazon subscription food boxes, music, and news.
Credit worthiness should no longer be based on encouraging taking out debt
‘Credit worthiness should no longer be based on encouraging taking out debt, which could also increase the risk of damaging chances for those that are unable to manage appropriately.’
Leeds is not the only lender to have unveiled an innovative way to potentially accelerate some first-time buyers’ dreams of homeownership this week.
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 per cent and 100 per cent 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 an interest rate of 5.49 per cent, and the maximum mortgage term is 35 years.
Leeds offers mortgages of up to 95 per cent 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.
On the ladder: Leeds has said the new service, provided by credit agency Experian, could be especially useful for young renters who may struggle to prove they can afford a mortgage
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.’
He said the majority of those who had signed up to Experian Boost so far were renters.
Sigga Sigurdardottir, managing director, consumer services at Experian, added: ‘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.’
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.
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