Can You Claim Rent As Genuine Savings?

It's no secret that affordability is running away from the average first home buyer right now and young borrowers are looking for ways to make their deposit go further. One way could be finding a lender who will count the rent you've been paying as genuine savings. There are a few questions around this right now so it's crucial to have the right information.

When you're thinking about buying a property, one of the most common terms you're likely to encounter is 'genuine savings'. For the uninitiated, this might seem like an industry jargon, but it's a crucial concept that can significantly impact your home loan approval process. In this blog post, we'll unpack the term 'genuine savings', delve into its importance when acquiring a mortgage, and, most significantly, explore the Australian lenders who consider rent as part of your genuine savings.

The idea of 'genuine savings' has roots in the lending industry's effort to assess a borrower's financial stability and responsibility. Simply put, genuine savings are funds you've saved or held in your account for a certain period, usually around three months. Most lenders look for evidence of these savings as a way to validate your ability to manage finances and potentially maintain regular mortgage repayments. However, in recent years, the concept of genuine savings has evolved, with some forward-thinking lenders considering regular rent payments as a form of genuine savings.

The importance of genuine savings cannot be overemphasised. They not only demonstrate your financial discipline but also build trust with your potential lenders. Especially in the highly competitive Australian property market, where lenders often need to assess and manage risk, having a solid record of genuine savings can set you apart. And while it's common to think of savings solely in terms of money put aside, paying regular rent can also signify financial stability.

Regular rent payments have emerged as an unconventional yet potentially impactful form of genuine savings. Given the high cost of living and rising rents across Australian cities, it's understandable that saving a substantial deposit can be a challenging task. In these cases, a strong rental payment history can provide evidence that you're capable of managing regular financial commitments, much like mortgage repayments.

In this blog post, we will illuminate the path for prospective homeowners who have been diligently paying rent and want it to be acknowledged as a form of genuine savings. We will provide an extensive list of Australian lenders who accept rent as genuine savings, delve into the specific conditions required, and furnish insights to help you navigate your home buying journey. So, if you've been a conscientious renter and are now looking to transition into homeownership, this post could be your compass. Let's delve in.

Understanding Genuine Savings

Genuine savings is a term used in the lending industry that refers to funds a borrower has saved and held in their account over a set period, usually for a minimum of three months. This concept is essential because it provides tangible evidence of your ability to save money consistently, a crucial aspect for lenders to assess your capability to service a home loan.

The core of genuine savings lies in your ability to demonstrate financial discipline and the capability to manage regular, ongoing commitments. It's a way for lenders to see how you handle your money over a considerable period. The concept goes beyond merely having money in a savings account. It's about showing an ongoing commitment to growing your savings, which can reflect your commitment to meeting regular mortgage repayments.

Several types of savings are typically classified as genuine savings. They can include regular savings accumulated in a savings account, term deposits held for at least three months, shares or managed funds held for at least three months, equity in residential property, and in some cases, even the funds received from the sale of a non-real estate asset, provided they have been held in a savings account for three months.

However, not all funds held in your account may be deemed as genuine savings. For instance, a large deposit made just before applying for a home loan may not qualify. Similarly, funds received as a gift, a tax refund, or proceeds from the sale of an asset aren't usually considered genuine savings unless they have been held in your account for the stipulated period.

In recent times, the idea of what constitutes 'genuine savings' has evolved, with a growing number of lenders willing to consider regular rent payments as part of genuine savings. This change is a reflection of the realities of the modern Australian housing market, where high rents can make it difficult for individuals to save in the traditional sense. For consistent rent payers, this evolution opens a new avenue to demonstrate their financial discipline and capacity to service a home loan. In the following sections, we'll explore this progressive development further, offering insights into which lenders are acknowledging rent as genuine savings and how you can leverage this in your homeownership journey.

Why rent as genuine savings matters to lenders

In an increasingly competitive housing market, it's crucial to consider all avenues that can bolster your case as a trustworthy and financially capable borrower. That's where your rental payment history enters the picture. For many prospective homebuyers, particularly those residing in high-rent areas or living independently, saving substantial amounts can be challenging due to the consistent, sizeable chunk of their income going towards rent. Recognising this financial commitment as a form of 'genuine savings' could indeed be a game-changer.

Firstly, regular rental payments, much like home loan repayments, represent a significant, recurring financial obligation. Consistency in meeting these obligations can thus indicate your ability to manage similar commitments in the future, i.e., home loan repayments. If you've been making rent payments on time and without fail, you're demonstrating the kind of financial responsibility and stability lenders look for in a borrower. This reliability could, therefore, be advantageous when applying for a home loan.

Moreover, as house prices continue to soar in Australia, the traditional approach of saving for a deposit is becoming increasingly challenging. With the median house price in many Australian cities being well over half a million dollars, a 20% deposit would require saving $100,000 or more. For many, especially those in the early stages of their careers or on single incomes, achieving this while paying high rents and meeting other financial obligations can feel almost impossible.

Given these realities, considering rent as a form of genuine savings has several implications. For the borrower, it's an opportunity to make their significant rental expenses work for them in their homeownership journey. If you're one of the many diligent renters who make regular rent payments, this allows you to present these payments as evidence of financial discipline and stability, instead of viewing them merely as an impediment to accumulating savings.

For lenders, it's an opportunity to adapt their policies to the changing realities of the housing market. By considering rent as genuine savings, they can widen their customer base to include reliable borrowers who may not have substantial savings in the conventional sense but have demonstrated their capacity to handle regular payments.

In considering rent as genuine savings, it's vital to ensure that your rent payments are always timely and fully documented. Ensure your rent is paid via a traceable method, such as bank transfer, and keep all receipts and rental contracts. You should also strive to maintain a stable residence, as frequent moves can be seen as a sign of instability. Remember, the goal is to paint a picture of financial reliability, so think of your rent payments as an investment in building that image. With this mindset, you can turn your rental history into a potent tool in your home buying journey.

Which Lenders Accept Rent as Genuine Savings: An Overview

The fact is that most lenders in Australia are willing to be flexible and consider each home loan application individually. Lenders are in the business of lending - they want to write loans - but they must act responsibly too of course.

Before proceeding, it's important to emphasize that the information provided here is intended to offer an overview of the general landscape of lenders in Australia who may consider rent as genuine savings. Lender policies can and do change, so it is vital to confirm directly with any lender to understand their current stance. Furthermore, remember that this article is intended to provide general information and isn't financial advice. Everyone's financial situation is unique, so it's crucial to seek independent financial advice tailored to your specific circumstances.

With these important disclaimers in mind, let's examine some lenders that have been known to consider rent as genuine savings.

1. Commonwealth Bank: As one of Australia's 'Big Four' banks, the Commonwealth Bank has historically shown a willingness to consider rent as a form of genuine savings. They typically look at the last 12 months of rental history and require a strong record of consistent payments.
2. Westpac: Another of the 'Big Four', Westpac has a similar approach to Commonwealth Bank, with a focus on a borrower's ability to maintain regular payments over an extended period.
3. St. George Bank: As a subsidiary of Westpac, St. George Bank also often follows a similar policy when it comes to considering rent as genuine savings.
4. Adelaide Bank: Adelaide Bank is one of the smaller lenders that have been willing to consider rent as genuine savings, providing further options for prospective home buyers.
5. Bankwest: A division of the Commonwealth Bank, Bankwest has also been known to consider a rental history in the context of genuine savings.
   

These are just a few examples, and there are certainly other lenders in the Australian market who consider rent as genuine savings. However, it's important to understand that even among lenders who accept rent as genuine savings, there can be variability in the exact criteria. Some might require a longer rental history, others may look for a certain level of rent payment relative to the proposed mortgage repayments, while others might require the rent to be paid into a specific type of account.

The crucial point here is that while rent as genuine savings is becoming more accepted, it's not universally so, and there are variations in criteria between lenders. Always check directly with the lender to understand their specific policies and requirements. Above all, seek professional financial advice to make sure you're making the best decision based on your individual circumstances.

Conditions for Rent to be Considered as Genuine Savings

While the notion of considering rent as genuine savings is increasingly being embraced by lenders, it doesn't imply an automatic pass for every rental payer. Each lender may impose specific conditions and criteria that need to be met for your rental payments to be considered genuine savings. This section will examine some general conditions you might encounter, but remember, these can vary from lender to lender.

Length of Rental History

One of the first conditions many lenders look at is the length of your rental history. Many lenders require at least 12 months of consistent rental payments, while others may accept a shorter period. This condition ensures that you have a sustained record of meeting your rental commitments and aren't just making payments in the short term to boost your application.

Consistency of Rent Payments

The consistency of your rent payments is another critical factor. Regular, on-time payments are a must, with any missed or late payments potentially being viewed negatively. Lenders will typically request bank statements or receipts as proof of your rental payments. Therefore, it is vital to maintain a clear record of all transactions.

Amount of Rent Paid

Some lenders may also consider the amount of rent you've been paying relative to the expected mortgage repayments. If your rent is close to or more than what your home loan repayments would be, this could strengthen your case. On the other hand, if your rental payments are significantly less, the lender may question your ability to afford higher home loan repayments.

Type of Rental Agreement

The type of rental agreement can also play a part. Rental payments to a licensed real estate agent are more likely to be accepted than private arrangements or board payments. Some lenders may require a lease agreement, while others might accept a letter from the real estate agent confirming your rental history.

Evidence of Savings

Even if a lender accepts rent as genuine savings, they may still require some evidence of traditional savings. This could include a certain amount saved or held in an account over a certain period.

Remember, these are general conditions and can vary greatly between different lenders. As always, it's essential to contact the lender directly or consult with a mortgage broker to understand the specific requirements and make sure your circumstances align with the lender's policies. While navigating these conditions might seem challenging, bear in mind that each one you meet brings you one step closer to turning your homeownership dreams into reality.

How to Improve Your Chances

While each lender has its own specific set of requirements, there are general strategies you can employ to improve your chances of having your rent considered as genuine savings. By adopting these approaches, you'll not only enhance your prospects of a successful mortgage application but also develop responsible financial habits that will serve you well into the future.

Maintain a Stable Rental History: This starts with having a steady rental history. Try to avoid moving frequently, as lenders may view this as a sign of instability. A stable, long-term rental history, on the other hand, reflects positively on your ability to maintain a consistent financial commitment. It can be helpful to aim for at least 12 months in the same rental property, as this is a common benchmark for many lenders.

Keep All Rental Receipts: Ensure you have a complete and well-documented record of your rental payments. This means keeping all receipts, rental agreements, and any other relevant documentation. If you pay rent via bank transfer, maintain regular and consistent payments that can be easily traced on your bank statements. In short, make it as easy as possible for lenders to see your regular and on-time rental payments.

Ensure Rent Payments Align with Anticipated Mortgage Repayments: As mentioned earlier, some lenders may compare your rent payments to your potential mortgage repayments. If your rent is similar to or higher than what your mortgage payments would be, this can demonstrate your capability to manage home loan repayments. To put this in context, it might be beneficial to understand what your potential mortgage repayments could be and see how these align with your current rent.

Maintain Good Credit: While your rental history is important, lenders will also consider your overall financial situation. This includes your credit history, which records your past borrowing and repayment habits. Maintaining a good credit score—by paying your bills on time, not taking on unnecessary debt, and not applying for credit frequently—will help present you as a responsible borrower.

Use a Mortgage Broker: A mortgage broker can be a valuable ally in preparing a strong application. They understand the ins and outs of the lending landscape and can guide you through the complexities of the application process. Mortgage brokers have up-to-date knowledge of the various policies of different lenders and can assist in matching you with the most suitable lender for your circumstances. They can also provide advice on how to improve your financial profile, offer tips to build a strong rental payment record, and guide you on assembling the necessary documentation. Importantly, a broker can help craft a compelling narrative around your rent as genuine savings, positioning it as evidence of your financial reliability and ability to manage a home loan.

While the landscape of genuine savings is shifting and each lender's policies may differ, it's crucial to remain diligent and proactive. By maintaining a steady rental history, keeping a complete record of payments, ensuring that your rent aligns with potential mortgage repayments, maintaining good credit, and potentially working with a mortgage broker, you can significantly improve your chances of having your rent considered as genuine savings.

FAQ About Using Genuine Savings To Get A Home Loan

1. Q: What does 'rent as genuine savings' mean?

A: 'Rent as genuine savings' refers to a recent shift in lending practices where some lenders consider regular, timely rental payments as a form of savings when assessing a home loan application. The idea is that consistent rental payments can demonstrate financial discipline and ability to manage regular mortgage repayments.

2. Q: Why is rent not always considered genuine savings?

A: Traditionally, genuine savings have been viewed as funds a borrower has saved over time, demonstrating their ability to put aside money consistently. Rent, on the other hand, is generally seen as an expense rather than savings. However, this perspective is changing as more lenders acknowledge the financial discipline required to make regular rental payments.

3. Q: Which lenders consider rent as genuine savings?

A: Some lenders, such as the Commonwealth Bank, Westpac, St. George Bank, Adelaide Bank, and Bankwest, have been known to consider rent as genuine savings. However, lender policies can change, so it's essential to check with the lender or consult with a mortgage broker to understand current policies.

4. Q: What conditions must be met for rent to be considered genuine savings?

A: While the conditions can vary, most lenders require a stable rental history, consistent and timely rent payments, rental payments that align with anticipated mortgage repayments, and a lease agreement with a licensed real estate agent. Some lenders might still require some traditional savings in addition to the rental history.

5. Q: How can I improve my chances of having my rent considered as genuine savings?

A: You can improve your chances by maintaining a stable rental history, keeping records of all rental payments, ensuring that your rent payments align with anticipated mortgage repayments, maintaining a good credit score, and potentially working with a mortgage broker to guide you through the process.

6. Q: How long does my rental history need to be?

A: While this can depend on the lender, many require at least 12 months of consistent rental payments. Some lenders may accept a shorter period, but longer rental histories are generally viewed more favourably.

7. Q: Will rent paid to a private landlord count as genuine savings?

A: This can depend on the lender. Some lenders may only accept rent paid to a licensed real estate agent, while others may accept private rental agreements. It's important to confirm this with the lender or consult a mortgage broker.

8. Q: Can rent replace the need for a deposit?

A: While rent can demonstrate your ability to make regular payments, most lenders will still require a deposit for a home loan. The amount required can vary based on several factors, including the type of loan and the lender's policies.

9. Q: How can a mortgage broker help?

A: A mortgage broker can provide invaluable assistance by guiding you through the application process, helping you understand lender requirements, advising on how to improve your financial profile, and assisting you in crafting a compelling case around your rent as genuine savings.

10. Q: Do all lenders in Australia accept rent as genuine savings?

A: No, not all lenders accept rent as genuine savings. While this practice is becoming more common, policies can vary greatly between lenders. Always check with the lender or consult a mortgage broker to understand their specific policies.

How Ello Lending Can Help

Navigating the world of mortgages can be complex, especially in light of changing lending practices such as the acceptance of rent as genuine savings. While these changes open new possibilities, they also bring new considerations to keep in mind as you plan your journey towards homeownership. The good news is, you don't have to navigate this journey alone.

At Ello Lending, we're committed to helping you explore all avenues towards your dream of homeownership. With our up-to-date knowledge of the ever-changing landscape of lender policies, we can guide you through the complexities and nuances, making the process less daunting. Whether you're a first-time homebuyer or someone looking to invest in another property, our team of experienced brokers can help you understand your options and find a suitable lending solution that respects your unique circumstances.

We understand the challenges many renters face when trying to save for a home while juggling high rental payments. That's why we keep a close eye on developments such as the growing acceptance of rent as genuine savings. Our team is ready to advise you on how to best position your rental history and demonstrate your financial reliability to potential lenders.

Our brokers can also guide you on how to meet the typical conditions for having your rent recognised as genuine savings, from maintaining a stable rental history to ensuring your rent aligns with potential mortgage repayments. If you've been diligently paying your rent but struggling to save for a deposit, we're here to help turn your rental history into a strength rather than a hurdle.

Moreover, we take pride in our dedication to transparent and personalised service. We understand that everyone's financial journey is unique, and we're committed to understanding your individual goals and circumstances. We're not just here to help you secure a loan; we're here to support you every step of the way as you make one of the most significant financial decisions of your life.

Owning your own home is an integral part of the Australian dream. While the path to achieving this dream can sometimes feel daunting, remember that with the right guidance and preparation, it's entirely within your reach. You've already demonstrated your financial discipline through regular, timely rent payments—now let us help you translate that discipline into a successful home loan application.

At Ello Lending, we believe in turning hurdles into stepping stones. Reach out to us today, and let's take the next step in your homeownership journey together