Creditworthiness Assessment Bill [HL]

(Limited Text - Ministerial Extracts only)

2nd reading (Hansard): House of Lords
Friday 24th November 2017 Lords Chamber

[The Minister of State, Department for International Development (Lord Bates) (Con)]

I am sorry to rise on such a discordant note from the noble Lord. I have a slight memory of being a Back-Bencher in this place on the Opposition Benches when there was a certain very distinguished Deputy Chief Whip by the name of Lord Davies of Oldham. He knew how to deal with Private Members’ legislation when it did not quite fit with the Government’s approach at the time. I assure the noble Lord that that is not the approach we are taking towards the Bill. The announcement, which I will come to shortly, was not rushed out 48 hours before. It happened to be part of a Budget Statement that had as its main theme helping people into the housing market, which is at the heart of what the noble Lord, Lord Bird, said.

I have to place an interest on the record. The noble Lord, Lord Bird, was a hero of mine long before he arrived in this place. He has done more to help the poor of this country than virtually anybody else I know. It is fantastic that he is here and it is wonderful that he continues to be an advocate—a voice for the voiceless—in our society.

The Creditworthiness Assessment Bill is about Britain’s rental tenants having restrictions placed on them in the availability of credit. They are fortunate indeed to have such a powerful champion in the House of Lords as the noble Lord. The issue at hand concerns the ability of lenders and credit reference agencies to accurately assess the creditworthiness of prospective borrowers. Currently, a history of meeting rent payments is not routinely recognised in people’s credit scores and is not commonly taken into account when banks conduct mortgage affordability assessments. For those without a long history of borrowing on a credit card, this raises the cost of borrowing. The noble Baroness, Lady Grender, articulated that point. This leads to a state of affairs where the poorest pay the most, as the noble Baroness, Lady Thornton, mentioned in her remarks. This problem is commonly described as the “poverty premium”. Those words were used in the debate. It also creates a significant barrier to getting on to the housing ladder because it raises the costs of getting a mortgage.

I recognise that banks must take into account other factors when assessing mortgage applications, including the multiple additional costs that come with home ownership. None the less, rental payments are usually an individual’s largest monthly outgoings and are therefore a significant indicator of one’s creditworthiness. For this reason—I underscore this sentence—it is right that a history of successfully paying rent should be recorded and recognised.

In addition to the noble Lord’s Bill, my colleague Paul Scully in the House of Commons brought a petition by 147,000 people who wanted their rental payments considered in their mortgage application. Their views are echoed by many hundreds of letters sent to Members of the House of Commons and received by the Treasury each month. This is clearly an idea whose time has come.

The Bill states that all firms carrying on credit-related regulated activities, including mortgage lending and providing credit scores, should be required to,

“take into account rental payment history and council tax payment history when assessing a borrower’s creditworthiness”.

I share the Bill’s objectives. We have a clear unity of purpose in seeking to help rental tenants get a fair assessment when they use financial services. Our concerns are ones only of means, not ends.

I am trying at this point not to get drawn into rehearsals of speeches that may have been given in the letting fees abolition efforts of the noble Baroness, Lady Grender, but I believe that the solution to this issue should avoid imposing further regulatory requirements on lenders, landlords or credit reference agencies. Additional regulatory requirements could generate a significant burden for these businesses. For example, given that mortgage lenders currently lack easy access to rent payment data, this approach would force them to go out and acquire it before making each new loan, which represents a significant logistical and technological challenge. This would not be in keeping with our aim to make Britain the best place in the world to do business.

Furthermore, anything that places a burden on lenders could negatively impact the availability of credit in the future: if we make it harder for lenders to offer mortgages to rental tenants, they may decide to offer fewer of them. That would of course be counterproductive to the objectives of the Bill. At minimum, additional operation costs would be likely to be passed on to consumers in the form of higher prices. Both those outcomes would be counterproductive, in our view. My noble friend Lady Wilcox has been a formidable champion of consumer rights over many years, and it was wonderful to have her contribution.

We share a common ambition in seeking to help as many hard-working families as possible get access to credit, ensuring that tenants get due recognition for a history of meeting rent payments on time, but we must endeavour to find a market-based solution rather than a top-down imposition—a solution that works for both consumers and businesses. That is why I am pleased to inform the House that, in the Autumn Budget Statement, the Government announced the rent recognition challenge, a £2 million competition, open to all, challenging the UK’s world-leading technological firms to develop new applications to enable rental tenants to record and collect their own rental payment data and share it with lenders in mortgage affordability assessments and credit scores. Furthermore, these apps could be used in a revolutionary new way, given that open banking technology comes into force in January 2018.

When a tenant pays rent out of their current account, this transaction is encrypted and secured, meaning banks have no easy way of accessing or verifying the information. However, with open banking, individuals will be able to use innovative new solutions to share this current account data through secure channels in a way that they were unable to do previously. Creating this competition allows the Government to serve not as a disrupter of the free function of markets but rather as a catalyst; to promote action, drive innovation, and harness the ingenuity of the private sector. Rather than placing the burden on businesses, this approach aims to empower consumers by giving them the necessary tools to collect, control and share their own data. The challenge will open to applications in January 2018: I encourage all firms with an interest in this important policy area to apply.

The noble Lord, Lord Bird, in his excellent introduction to this debate, asked how it benefits social housing tenants. The challenge is designed to produce solutions applicable to both the social and private rented sectors. We also support the rental exchange scheme, which does important and effective work. The noble Baroness, Lady Thornton, asked about the cost of credit. It is too high for people on low incomes. The Financial Conduct Authority proposes to clarify that firms should consider not just whether a consumer can repay, but whether they can pay without causing financial distress.

The Government’s introduction of a cap on the cost of payday loans was widely welcomed. We have introduced the concept of fee-free banking for many families, to encourage them to have a digital presence and therefore increase their ability to access credit. A key part of that is to ensure that we have people in work and, through measures such as the national minimum wage, to ensure that they can afford it. The noble Baroness, Lady Grender, mentioned raising the tax threshold, which has made a significant difference, taking 4 million people out of paying tax altogether.

I thank all Members who participated in the debate and particularly the noble Lord, Lord Bird, for bringing the matter to the House’s attention. I also thank him for the work that he, the Big Issue and Experian have done over a period of seven years in this role. I encourage them to recognise that their efforts are not in vain. They are making progress and this issue is being raised up the agenda, a fact which was recognised in the announcement that my right honourable friends the Chancellor and the Economic Secretary made in relation to the Budget.

In the aftermath of the damage incurred by the global financial crisis, reforming the financial services sector to work better for consumers has long been among the Government’s top priorities. The rent recognition challenge is the next step in this effort. Creating new and innovative solutions to allow tenants to record and share their rental history would make the credit assessment process fairer, provide a helping hand to aspiring home owners and help to build a better Britain for rental tenants, which is the end that we all seek.