Can You Use Rental History to Buy a House?

Are you one of the many people in Australia dreaming of owning a home? Have you been renting your home for quite some time now? Are you wondering if you can use your rental history to buy your first home?

First home buyers are facing a perfect storm of challenges in 2024, as interest rates remain stubbornly high, property prices continue to soar, and advertised rent values have climbed by almost 30% since early 2020. According to CoreLogic head of Australian research, Eliza Owen, there are “more challenges than ever for first home buyers trying to get into the market.” This makes it more important than ever for first home buyers to leverage their rental history when applying for a home loan.

What is a Rental History of a Property?

What is a rental history report? Also known as a tenancy ledger, it’s a document that details your payment history as a tenant. It shows how long you stayed at the property, how much you were paying, how frequently you made payments and, critically, whether those payments were made on time.

Why would a rental history of a property be significant in your quest to buy your first home? Because it can demonstrate your ability to make consistent and timely payments. It shows that your budget is capable of servicing a substantial monthly repayment for an extended period of time.

How Will a Rental History Check Impact Home Loan Approval?

For first-time homebuyers in Australia, a rental ledger can be a powerful tool. A strong rental history check is proof of responsible financial behaviour and demonstrates you can manage housing-related expenses. This means you’ll be perceived as “lower risk” by some lenders, which could potentially result in more favourable loan terms or increased borrowing capacity.

A positive tenancy report can also help to make up for a limited credit history. By enhancing your overall creditworthiness, it can increase your chances of gaining mortgage approval.

How to Use Your Rental History to Improve Your Mortgage Application

If you want to successfully use your rental ledger to your advantage, then you’ll need to make sure it’s a positive report. How can you do this?

• Pay Your Rent On Time: Consistently paying your rent on time demonstrates financial responsibility. Late or missed payments will negatively impact your rental report, so try setting up automatic payments or payment reminders.
• Document Your Payment History: Keep records of rent receipts, lease agreements and any correspondence with your landlord. You can also request a copy of your tenancy ledger from your landlord, either at the termination of a lease or when you’re ready to apply for a home loan.
• Extend Your Tenancy: If possible, consider extending your lease agreement for as long as possible. A long-term tenancy demonstrates commitment and stability.
• Good Communication: Try to build a positive relationship with your landlord or property manager. This will make it easier for you to obtain a positive reference letter highlighting your reliability as a tenant.

Alternative Options for Limited Rental History

What if you’re currently saving to buy your first home but you don’t have a formal history of renting? There are still practical steps you can take to maximise your chances of securing loan approval, including:

• Alternative Forms of Credit History: Keep records of phone bills, or regular payments for insurance or car loans.
• Non-Traditional Housing: If you’re renting a room or still living with family, ensure you document payments for board or utility bills (even if it’s not a formal arrangement).
• Improve Your Credit Score: This could be as simple as applying for a credit card and then paying it off in full each month.
• Consider a Guarantor: If possible, think about enlisting the help of a guarantor to support your mortgage application.
• Focus on Building Savings: A larger deposit can help to offset concerns about limited rental payment history.

Talk to ZEP Finance About Utilising Your Rental History Report

A positive rental history can be a powerful tool for buyers looking to secure finance for their first home. An experienced mortgage broker can offer you tailored advice on how to leverage your rental history to strengthen your loan application.

To benefit from expert advice and navigate the path to homeownership with confidence, contact ZEP Finance today.