Most students in higher education take out student loans to help them fund themselves during their studies. In 2021, it was estimated that a student graduating from an English university incurred £45,000 in student debt. This large sum is not a traditional debt, however, as it is only repaid once students earn over a certain threshold.
No matter how much you've borrowed, it's a good idea to look at how your student debt may affect your future finances. It's likely that you will be paying the loan off for a number of years and decades, which means that you need to think ahead.
You may be wondering if your own student debt will influence your financial situation in the future. Mortgage lenders are known for scrutinising the financial history and situation of applicants, which could be causing you some concern.
In this article, we'll take a look at how student loans could influence your mortgage application and whether your student finance will affect your credit score or not. We'll also look at other factors that mortgage lenders look at and how you can improve your credit report and mortgage application.
Having a student loan can make it more difficult when you are applying for a mortgage. The mortgage lenders you apply to will look at your student debt in addition to any other loans you currently have. This is to make sure that you can afford your mortgage repayments. However, student loans work differently from other types of debt. They don’t appear on your credit file, which means that they don’t affect your credit score.
Mortgage lenders will look at how much you owe overall, in addition to your other loans. If you owe a large amount, this could affect how much a lender is willing to give you for your mortgage. You will have to make monthly repayments to your student loan once you earn over a certain amount. This will lower your take-home pay, which is the figure that lenders will look at when calculating how much they are willing to lend you for your mortgage.
You can get a mortgage if you have a student loan, although the process may be harder than if you didn’t have one.
On the one hand, a degree usually means that you will find a well-paid graduate job, which will look favourable to mortgage lenders. It means that you should be more likely to keep to regular repayments because you will have a steady and well-paid job.
However, a student loan also means that you will need to make regular repayments, which will reduce your net pay. Depending on how much you earn and any other loans you have, a mortgage lender may lower how much they are willing to lend you for your mortgage.
On the surface, the more you pay out each month for your student loan, the less mortgage lenders are likely to lend you. This isn’t the entire case, however, as there are a number of additional factors that will have a greater influence on how much you may be able to borrow for your mortgage.
Mortgage lenders will look at your remaining student loan balance. This figure will have less of an impact on how much you may be eligible to borrow, but it will be considered and factored in when the lenders are looking at your overall financial situation. They will also look at your income, which is a major focus in any mortgage application. The more you earn, the better the chance that you will be accepted for a higher mortgage.
Student loans are different from other loans and aren’t listed on your credit file. This means that the amount you owe won’t influence your credit score and, therefore, won’t be a major factor when you apply for a mortgage.
Lenders will look at your credit history and score before they decide if and how much money they should lend you. Credit reference agencies, such as Experian and Equifax, may give you a different score rating. The Experian calculator runs from 0-999, while the Equifax calculator runs from 0-700.
Whatever system is used, you need to aim for a score that is as high as possible in order to qualify for more loans and mortgages. Lenders and brokers are able to access your credit score and base their decision on how well your credit history ranks.
There are various other factors that will affect your credit score and the amount you may be able to claim for your mortgage. This includes late or missed payments on your credit card and other loans you have. Using the available credit on your credit card can also be viewed as a red flag, as can making too many loan applications in a short period of time.
Having a short credit history can also affect your credit score and ability to apply for loans and mortgages. This may be unavoidable, especially if you are young and haven’t had a loan or credit card before. It’s a good idea to start building your credit history if you plan to apply for a mortgage in the near future. This may involve getting a credit card.
You can boost your credit score by registering on the electoral roll as this helps lenders to trace you. It’s also important to pay your bills on time and keep up with loan repayments. You should also close any unused credit accounts as lenders may be concerned if you have access to a large quantity of credit.
Even though it may not have a major impact on your mortgage application, you still need to tell lenders that you have a student loan. This is the case even if you don’t earn enough to meet the student loan payment threshold. If you don’t disclose your student loan and required financial information to lenders, it may be considered fraud.
You need to disclose the student loan repayments you make each month on your mortgage application. This will be cross-referenced with the amount that is listed on your payslips if you are a PAYE employee. It will also be visible on your Self Assessment tax returns if you are self-employed.
If you are found to have lied to a mortgage broker or lender, your application will be rejected. It may not result in a penalty or custodial sentence, although you may face either if you and all other parties involved are discovered to have conspired to defraud on your application.
Along with your student loan, you must also disclose any other information that the mortgage lender or broker requires so that they can properly assess your application.
Mortgage brokers and lenders usually base the maximum amount you can borrow by multiplying your income between four and five times. For example, if your annual salary is £25,000 (before tax), you could borrow a maximum of £118,000, which is just under five times your salary. This would lead to a monthly repayment of between £510 and £560 over a 25-year period.
Although a student loan won’t directly influence whether your mortgage application is approved or not, it can impact your net income, which lenders do scrutinise. It’s advisable to try and save as much as possible before applying for a mortgage, as a large down payment will help boost your application.
The average first-time buyer will put down a deposit worth 20% of the property’s value, although some mortgage lenders offer deposits of 10% and 15%. Ideally, you will save as much as possible and be able to put down at least 25% or as much as 40%.
Once you have decided on how much you can afford to save, you can approach a mortgage lender, who will evaluate your finances and decide whether you are capable of keeping up with mortgage repayments.
Student loans aren’t considered a source of income because they aren’t taxable funds. However, any student finance you receive will be taken into consideration when you apply for a mortgage because it will affect your net income. You can also use some of the loan money to put towards a deposit for your property if you haven’t spent it during your time studying.
Every mortgage lender is different, but most require you to be in employment in the same job for a minimum of three months. However, the longer you’re in employment, the better it will look better on your mortgage application because it shows you have a steady income and are more likely to keep up with repayments.
Having a student loan won’t directly affect your mortgage application because student loan debt doesn’t appear on your credit history in the way that other types of personal loans do. You are legally required to declare your student loan. However, your mortgage broker or lender needs a complete insight into your financial situation. It can be classed as fraud if you fail to declare your student debt or any other loans that you may have.
Although your student loan won’t directly influence your mortgage application, it will affect your net income, which is an important figure in the mortgage approval process. Depending on your gross income and your monthly repayment for your student loan, mortgage lenders may decide to limit your mortgage so that you are more likely to make mortgage payments.