Renting
Around one fifth (19.1%) of homes in the UK are rented, and private rentals account for about 4.6 million of those. Local authority and other social housing rentals also comprise some of this sector.
The increased cost of buying a home and mortgages, driven in part by interest rate increases, has pushed up the volume – and cost – of UK rentals, particularly in cities such as London, Bristol, Brighton, Cambridge, and Edinburgh. This has created a highly competitive market for rental properties, with landlords and letting agents often requiring rigorous vetting and up to six months’ worth of rent in advance, on top of a deposit.
This works disproportionately against some sections of the population, particularly the 5 million people in the UK who have a ‘thin’ credit file. This can be a double-edged sword for people aged under 35 or new arrivals to the country, who need to build a traditional credit profile in order to access financial products and services.
We look at how open banking can help the rental process – for tenants, landlords and rental agents.
Tenant vetting
Like the home-buying process, renting a property in the UK is not simple. As well as providing identity documents and sometimes personal references, prospective tenants will need to provide evidence of their ability to pay their rent (an affordability check), usually by providing six months’ worth of their most recent bank statements and payslips. This is time-consuming for all parties, can take several days, and is a significant administration overhead for landlords and letting agents. However, open banking offers a speedy and cost-effective alternative that can benefit all parties.
Renters can choose to authorise access to their financial data via open banking connections, with some apps enabling you to quickly categorise transactions, giving agents and landlords an up-to-date and detailed snapshot of all their incomings and outgoings without deciphering bank statements line-by-line. This speeds up the vetting process – checks can sometimes be completed in a single day, giving them a head start in the ‘race for space’ when trying to secure accommodation.
Open banking data can also provide up to 12 months of financial data, compared with the six months that is often offered by traditional credit scoring services, providing a more comprehensive risk profile for landlords and also helping reduce the risk of fraudulent statement submissions.
They can also increase the likelihood of approval for tenants, particularly those who might be excluded by traditional checks, because they can include evidence of income and additional repayments, for example from savings, international sources, and subscription services, which can help tenants build their profile and increase their likelihood of acceptance.
This is particularly helpful for the growing number of gig economy employees, many of which (56%) are filled by people aged 18 to 34, and who already struggle to build a credit footprint.
There are several platforms that use open banking data to offer one-stop tenant vetting and on-boarding services, pre-qualification and automated document signing, alongside additional services such as insurance. For landlords, these services also help ensure that the tenant data held is compliant with data protection and anti-money laundering regulation.
Student accommodation
Open banking also has a part to play in supporting payments for student accommodation (both deposits and rental fees), and, again, it works for students and educational institutions alike. The target demographic of 16-24-year-olds is already familiar with the technology and comfortable with an app-based payment experience. One university revealed that 30% of its students chose open banking as their preferred way to pay.
Educational institutions, meanwhile, can make significant savings on card processing fees, reducing operational expenditure and time spent on admin, improving reconciliations (linking a payment with a unique identifier for each student helps to reduce manual errors), and improve cashflow by receiving payments in near real-time.
Rent refunds and rebates can also be paid back to students, or their parents, via open banking.
Rent arrears
These cost and administrative savings also apply to local authorities, social housing projects and housing associations, all of which handle large volumes of rental payments.
Open banking payments can also help tackle rent arrears, which are a significant problem for all landlords – private and public. Near real-time payment collections remove the delay in funds clearing, compared with card payments, reducing the risk of arrears if payments are cleared late.
The future
While these are all welcome steps towards a completely digital customer experience, the reality is that, for both house sales and rentals, the customer journey from finding a property to moving in still involves a combination of manual and paper-driven and digital checks and processes.
However, home-buying is one of the seven key economic sectors identified by the government as being able to benefit from increased data sharing by the ‘Smart Data Big Bang’. This initiative, which will be enabled by powers conferred in the Data Protection and Digital Information Bill, aims to drive increased competition, innovation and consumer choice.
In the Chancellor's 2023 Autumn Statement, £3 million of funding was allocated to run pilot projects in home-buying and selling which will support future smart data schemes. The Department for Levelling Up, Housing and Communities is due to announce details of the projects in Q2 2024.
Meanwhile, initiatives such as those proposed by the Open Property Data Association (see our case study on the next page) aim to digitise the key steps in the home-buying process. The organisation recently released its latest property data standards to make free and shareable data tools available across the property industry.
In the not-too-distant future, home-buying in the UK could follow the Australian market, and be a digital experience from start-to-finish.
