Do Banks Accept Rent as Savings?
Purchasing your first home is an exciting time but it can also be stressful when you are renting and saving for your deposit
However what many potential buyers don’t realise is that some lenders will recognise rental payments as genuine savings. This gives a much needed stepping stone to those renters with a stable rental history looking to turn their rental payments into mortgage repayments.
Loan Market corporate spokesperson Paul Smith said that while demonstrated rental repayments would forego the standard criteria for a deposit to be genuinely saved, borrowers would still need a minimum deposit level.
“The major advantage of this policy is that borrowers can use money from the sale of an asset, gift or sudden financial windfall as their home loan deposit. In most normal situations a bank wouldn’t allow this as the sole basis of a home loan deposit because it wasn’t genuinely saved.”
Mr Smith said that this policy was looked upon quite favourably by some lenders because renters with a stable rental history are well conditioned to making regular payments and can easily demonstrate their ability to create an effective budget.
In this bold move, rather than having to demonstrate a good savings history, borrowers can show 12 months of a strong rental record. However when the policy was first introduced there was some initial confusion around the policy.
“When these products first came into the market two years ago, many borrowers mistakenly thought they could now borrow 100% and wouldn’t need a deposit. A minimum 5% deposit is still needed, it’s just the money can come from a number of sources.
Mr Smith said that over the past year these types of products have grown in popularity as consumers become aware they exist and as the rental market continues to tighten.
“With the rental market still incredibly tight in most capital cities this will be a very popular home loan product for renters looking to make the jump to become home owners.”
Mr Smith said this type of policy demonstrated the importance buyers should place on having a good savings plan in place when purchasing their first home.
“Borrowers looking to move from renting to owning their own home should have a reasonable savings plan in place to improve the strength of their loan application,” Mr Smith said.
State government initiatives such as the First Home Owners Grant and other state concessions can also be used towards the home loan deposit. Borrowers however, should also look at reducing bad credit card debt and other loans to help strengthen their loan application.