Can I get a mortgage with student loans?
Getting a university education is expensive, and the cost is unlikely to come down any time soon. Student loansLoans that are taken out by students to finance their educat... are, therefore, needed by millions of students in the UK.
Indeed, the average student debt at the end of their course is currently £45,000, according to a recent paper. Nearly £20 billion is loaned to some 1.5 million students each year, and the total outstanding debt reached £182 billion by the end of March 2022. By 2050, the government reckons outstanding debt will reach £560 billion.
With the scale of loans having reached these proportions, it is fair to ask whether you can get a mortgage with student debt.
Does a student loan affect a mortgage?
Government advice is unequivocal: having a student loan does not affect your credit rating. This is because the debt does not appear on your files kept by the credit reference agencies – because the loan is considered different from other borrowing types.
There is no intrinsic reason why having a student loan should affect your application for a mortgage.
Does a student loan affect my credit rating?
Although it might not impact your credit rating, that does not mean that potential mortgage lenders will ignore it. Far from it. You are almost certain to be asked whether you have such a loan, whether you are making repayments, and, if so, how much you are repaying each month – this builds up the lender’s picture of how affordable any mortgage might be.
Even though your student loan does not appear on the credit files, the repayments you make each month – together with all the other outgoings that are set against your income – may impact a prospective lender’s assessment of the affordability of any mortgage.
Thanks to recent changes in the rules, however, there is one area where you can avoid the more stringent affordability tests that mortgage lenders once carried out. With effect from 1st of August 2022, the Bank of England will scrap the requirement for mortgage lenders to “stress test” the affordability of any mortgage offer by assessing whether repayments would still be affordable if the rate of borrowing exceeded 3% of the lender’s standard variable lending rate.
As with any mortgage, therefore, the key to success is gaining as strong a financial position as possible – any student loan repayments are well within your grasp, you have a sizeable deposit, earn an attractive salary, and maintain a healthy credit rating.
Because you have had a student loan, you are likely to be a graduate and, therefore, earning a more than usually healthy salary – which counterbalances any adverse effect of those monthly student loan repayments.
While your student loan will not be seen in the same light as other significant borrowings that appear on your credit file, its existence will still be considered by any lender. This is along with the standard tests of affordability, including the nature of your employment, your employment historyA record of a borrower's employment history, which may be us..., income, land management and any other borrowing.
Do I have to declare a student loan for a mortgage?
The simple answer is yes, you do. Indeed, you must honestly answer any question asked in consideration of your mortgage application. In its advice last updated on the 11th of August 2021, the Financial Conduct Authority (FCA) warned that failing to provide the information required by law or giving false details could be guilty of mortgage fraud.
This is easily enough avoided, of course, simply by declaring the amount of your student loan, the outstanding balance, and the amount you are repaying each month. An application for a mortgage with student debt is little different from any other mortgage application in that regard.
What are the impacts of student loans on mortgage applications?
The existence of a student loan is unlikely to prevent you from securing a mortgage, and the information about it that you must declare in any mortgage application is limited to:
The amount you are repaying each month
- the amount you are repaying each month on your student loan – it could play a significant part in your monthly outgoings and, therefore, affect the amount of any mortgage you are offered;
- the relevant information is, in any event readily accessible by any prospective mortgage lender since your student loan repayments appear on your PAYE payment advice each month and – along with National Insurance contributions and Income Tax – are deducted automatically from your income;
- for the self-employed, any student loan repayments will also be evident from your annual tax declarations;
- any lender, therefore, will be looking to assess the affordability of any mortgage advance in terms of your net earnings after the deduction of student loan repayments and the deduction of National Insurance and Income Tax;
The outstanding balance on any student loan
- the outstanding balance – how much you still have to repay on your student loan, is also a matter of interest to any mortgage lender since it indicates just how much you owe, how long it’s likely to take you to repay the outstanding balance, and for how long you will be making those monthly repayments from your earnings.
Next steps – Mortgage with student loans
Although your student loan will not be viewed in the same light as other borrowing or credit, any mortgage lender will still want to know whether you have such a loan, the outstanding balance, and how much you are repaying each month.
For a greater understanding of the likely impact of your student loan on any mortgage application, you might want to consult experienced mortgage brokers – such as ourselves here at NeedingAdvice.co.uk.
FAQs – Mortgage with student loans
Can I get a mortgage as a student?
Yes, you can get a mortgage as a student in the UK. You may need to pay some extra fees when applying for a mortgage but this is usually done through an additional fee paid directly to the mortgage provider rather than being added to your mortgage payments. Some lenders offer special deals for students so make sure you check them out before applying for a mortgage.
How does a student loan affect my chances of getting a mortgage?
If you have student loans then they will show up on your credit report. The fact that you have student loans won’t necessarily mean that you’ll struggle to get a mortgage, however, it’s something that needs to be considered if you’re planning to apply for one. It’s important to note that many lenders will consider your student loan status when assessing your ability to afford the mortgage and the length of time it would take to pay off the loan. This means that even though you have student loans, there is no guarantee that you’ll be able to get a mortgage. However, if you do manage to secure a mortgage, there will be additional costs associated with paying back the loan. Getting a loan as a student is a complicated process, you can contact a mortgage broker before starting your mortgage application.
Should I pay off my student loan or my mortgage first?
It depends what type of loan you’ve taken out. If you took out a consolidation loan (where you combine all your existing debts into one) then it’s best to pay off your debt first. Consolidation loans usually come with lower rates of interest, so you should try to clear these first. If you have a personal loan then it’s best to start clearing this first. Personal loans tend to have higher interest rates than consolidation loans, so it makes sense to clear this first. Once you’ve cleared both of these types of loans then you can move onto consolidating your student loan.
What happens if I default on my student loan?
This could result in having to pay more money towards your loan over a longer period of time. If you default on your student loan then you will lose the right to claim benefits from the government. Your employer may also stop providing you with employment-related support. If you default on a private student loan, then you will probably face a fine. In addition, you may find yourself unable to access certain forms of financial assistance, including grants and scholarships.