Over the years we have received many questions from students and parents asking about the impact of student loansLoans that are taken out by students to finance their educat...
on getting a mortgage in future. Student loans are not considered when calculating your affordability, but they do affect your ability to get a mortgage.
Student loans can be paid back over time or all at once. If you pay off your student loans early then it will reduce the amount that you need to borrow for a mortgage. However, if you take out a large sum of money to pay off your student loans then this could make it harder for you to qualify for a mortgage.
Student loan interest rates are usually lower than other types of borrowing. This means that paying off your student loans sooner is more beneficial than waiting until later.
Here in this article on the impact of student loans on your mortgage application, we will explain the different types of student loans available and how they affect your mortgage application. We also look at some of the best ways to manage your student loans so that you can get a better deal on your mortgage. If you are a student, you must read this article carefully as it may help you with your next step towards buying your first home. At the end of the article, we will answer the frequently asked questions on the affect of student loans on mortgage applications in the UK. We request students also read our previous article on student mortgages
on our website.
Post Topics – Affect of Student Loan on Mortgage Application
Student Loans and Mortgages
Since 2012 university fees have trebled and students are now leaving university in most cases carry with their student debt, sometimes in the region of £40,000 to £50,000.
This debt might seem daunting when you want to get on the property ladder and are looking to purchase a property, but the good news is this doesn’t necessarily mean you will be refused by a lender for a mortgage loan. We will discuss this in more depth in this article.
Can student debt affect you getting a mortgage?
If you have a steady job but still have student debt, it shouldn’t stop you from being able to get a mortgage loan but whether you will be accepted by a mortgage lender will depend on several factors, including monthly student loan payments, credit card debt, credit files, any other outstanding debt,monthly income etc. When lenders are assessing a mortgage application, they will check the applicant’s affordability by checking their income against their outgoings such as bills, debt repayments and other monthly expenses that are occurring. Lenders are trying to determine the borrower’s disposable income and whether they will be able to afford all their monthly payments even with the extra added cost of monthly mortgage repayments. This will also have an effect on how much a lender will be willing to loan to you as a mortgage towards your property purchase.
Another factor a lender will check is your credit report,
so it is a good idea for you to check this before applying for a mortgage in case there are discrepancies or to provide you with a chance to make improvements were possible. They use this to establish how trustworthy of a borrower you are.
How student loans differ from other forms of debt is that student loan does not appear on your credit report and therefore doesn’t impact your credit score. Unlike other types of debt, student loan repayments are relative to how much you earn, and you only start repaying the loan once your salary reaches a certain threshold. The more you earn, the more you pay back each month. Your student loan balance is written off after a set period of time. Another difference is that the repayments are automatically deducted from your monthly wages.
Lender’s criteria’s and requirements can vary lender to lender so their underwriters will assess each applicant on a case-by-case basis before approving a mortgage loan.
The best thing to do here is to contact a mortgage broker
before starting your application
Will other debts affect you getting a mortgage?
Other types of debt such as credit cards, personal loans or car loans can have an effect on your chances of getting a mortgage loan. Just like student loan debt, lenders will assess how much your monthly repayments of these other debts are and compare this to your income to check your affordability to see if you are able to manage the added cost of mortgage repayments.
How they differ from student debt is that these types of debt will show on your credit history and may bring your credit score down, whereas student loan debt doesn’t show up on your credit checks. Too many loan applications can decrease your credit rating significantly and lenders may decide against lending you a mortgage loan if they see evidence of irresponsible borrowing.
If you are trying to improve your creditworthiness before applying for a mortgage loan, you should attempt to clear other types of debt first before your student loan. Student loan debt is cheaper than other forms of debt so generally, it is better to put any additional money towards your deposit as this can increase your chances of being accepted by a lender if your loan-to-value (LTV) ratio can decrease and may potentially unlock deals with better interest rates which may save you more money.
You do not need to be completely debt free in order to get a mortgage loan, but it can have an effect on how much you can borrow, and the decision will be based on whether the lender is satisfied that you can keep up with all your existing repayments and mortgage repayment. Applying for a mortgage before knowing you are ready and being rejected can lead to more issues when you want to reapply as it can cause your credit score to drop. A mortgage advisor
can be useful in helping you find the right lender for your circumstances and strengthen your application.
FAQs- Student Loans and Mortgages
Does a student loan affect mortgage in the UK?
Mortgage lenders do not always consider student debt while checking your financial situation. This means that even though you might have a good chance of getting a mortgage, it could still be denied because of your student loan debt. If you are planning to apply for a mortgage, make sure to take into consideration other types of debt, especially those that are secured against your home. We would suggest to contact a specialist broker
before starting your mortgage application with a student loan debt.
Does a student loan impact my Credit Score?
The amount of student loan debt you carry has no bearing on your credit score. However, having too many unsecured debts can negatively impact your credit history. So, if you are looking to buy a house, try to pay off your student loan as soon as possible.
If you are interested, you can find your credit reports here.
How to get a mortgage with student debt?
There are several ways to get a mortgage with a student loan. You can use a mortgage broker who specializes in student loans. They will help you understand what type of mortgage you qualify for and then guide you through the process. Alternatively, you can also go directly to a bank or building society and ask them about their policies regarding student loans.