How to get mortgage ready while renting
Dreaming of owning your home but stuck in the rental cycle? You're not alone, in fact 35% of households rent. But for those wanting to make their first step onto the property ladder, transitioning from renting to buying can be challenging, especially when it feels like your hard-earned money is disappearing into your landlord's pocket each month. But don't lose hope! It's entirely possible to get mortgage ready while renting. Here's how you can do it.
The challenge of saving while renting
It's no secret that renting can make it harder to save for a home. A disproportionate amount of 16-24 year olds rent in comparison to older generations - 74% to be exact - with the number of households who rent now more than double the number back in 2001. It's no wonder this cohort has been nicknamed 'Generation Rent'.
This is also the generation that earns the least, as they tend to be studying, or earlier on in their careers. On average, tenants spend two-fifths (39.1%) of their monthly income on rent, with the average rent forecasted to rise by 17.6% by 2028. While mortgage repayments tend to account for 19% of gross income.
High rent payments can eat into the money you might otherwise set aside for a deposit for your first home. However, with a strategic approach, you can still work towards your homeownership goal.
How to save while renting:
1. Budget and save diligently
Start by creating a realistic budget that accounts for all your expenses. Identify areas where you can cut back and funnel those savings into a dedicated home-buying fund. If you use a Lifetime ISA to save up for your first home, your savings will also get a free 25% boost from the government (note there is strict eligibility criteria for a LISA). Automating your monthly savings can also help ensure you consistently put money aside each month.
2. Improve your credit score
Your credit score plays a crucial role in your mortgage application. But why can't your biggest monthly expense count towards improving your credit score? Mortgage repayments have a positive impact on your credit file, so why shouldn’t your rent payments? This is where a service like CreditLadder comes in handy.
CreditLadder allows tenants to report their rent payments to major credit reference agencies. By logging your rent payments with CreditLadder, you can build a positive credit history, proving to lenders that you're reliable with regular payments. This can be particularly beneficial when it comes time to apply for a mortgage.
How CreditLadder Works:
- Sign up - Create an account with CreditLadder
- Link your bank account - Securely connect your bank account to track rent payments.
- Report payments - CreditLadder will report your rent payments to credit reference agencies.
- Monitor your credit score - Watch as your consistent payments boost your credit score over time.
3. Reduce debts
Lenders will assess your debt-to-income ratio when considering your mortgage application. Focus on paying down debts to improve your financial standing. This not only increases your chances of mortgage approval but also can help you secure a better interest rate.
4. Seek professional advice
Navigating the path from renting to buying can be complex. Consider speaking to a mortgage advisor who can provide personalised advice and guide you through the process.
Conclusion
Getting mortgage-ready while renting might seem daunting, but it's achievable with the right strategies. By budgeting wisely, boosting your credit score with services like CreditLadder, reducing debts, and seeking professional mortgage advice, you can transition from renting to buying.
Start reporting
Report and improve your credit score today with CreditLadder and move closer to your dream of owning a home.
