Checked by Connor Fitzgerald, Founding Director
If you graduated with a student loan and are now thinking about buying your first home, you’ve almost certainly asked yourself: will it hold back my mortgage application?
It’s a completely understandable concern. Student debt in England is now among the highest in the world, and with average graduate debt sitting at around £53,000, many first-time buyers worry that their loan could be the barrier between them and homeownership.
The good news is that having a one does not have a major impact on your mortgage application. However, that’s not to say it has no impact at all, and it’s important for all former students to understand exactly what that impact is…
One of the most important and often misunderstood facts about UK student loans is that they do NOT affect your credit score. In fact, they don’t even appear on your credit report at all.
This is different from a personal loan or credit card, where the balance and repayment history are visible to any lender who runs a credit check. Because your loan is administered by the Student Loans Company (SLC) and repaid through the tax system, it operates completely outside the traditional credit reporting system.
What this means is that:
Consequently, your dream of homeownership will not be completely hampered by the fact that you decided to go to university.
However, this does not mean your loan is invisible to mortgage lenders. It simply means it won’t damage your credit score; the way it affects your mortgage application is different, and equally important to understand.
Here is where things become really important. While your student loan won’t damage your credit score, it will feature in your mortgage application, specifically in the affordability assessment.
When you apply for a mortgage, lenders carry out a detailed review of your income and outgoings to determine how much you can afford to borrow. Your monthly student loan repayment is treated as a committed expenditure just like rent, car payments, or utility bills, and it reduces the amount of disposable income you have available to service a mortgage.
Consequently, the more your loan lowers your take-home pay, the less a lender is likely to let you borrow.
This is a crucial distinction that surprises many first-time buyers. Lenders are not primarily concerned with the total size of your loan. What they care about is how much you repay each month because that is money that won’t be available to pay back your mortgage.
Let’s put this into context…
If everything else is equal between the three, Jamie, without any student loan repayments, will be seen by lenders as being able to afford the highest mortgage repayments, and is, therefore, likely to be able to borrow the most.
Despite the fact that Leila’s total loan amount is larger than Kai’s, her lower monthly repayments mean she’ll be seen as being able to afford higher mortgage repayments than Kai.
As we’ve already clarified, having a student loan does impact your mortgage application but not to the extent many fear. With that being said, it’s still important to be as prepared as possible.
So, here are the practical steps you can take to improve your chances of a successful mortgage application.
A good place to start is understanding how much your student loan is reducing your disposable income by each month.
Log into your Student Loans Company account or check your monthly payslip to find your exact monthly repayment. As mentioned earlier, this is the figure lenders focus on, not your total balance.
Saving a larger deposit reduces the LTV ratio on your mortgage application and makes you less of a risk to lenders. Even an increase from 5% to 10% can make a significant difference to the rates available to you.
Reduce or eliminate other forms of debt where possible before submitting your mortgage application. The fewer committed monthly outgoings you have, the more a lender will be willing to lend you.
Check your credit history for free by clicking HERE.
It’s vital that you correct any errors and make sure there are no unexpected surprises.
In the months before submitting a mortgage application, avoid taking out new credit cards, loans, or overdrafts. Multiple credit applications in a short period can raise flags with lenders.
You might be wondering why you’d work with a mortgage broker when you could just do it yourself online. Well, here’s exactly why:
At The Levels Financial, we’ve helped hundreds of first-time buyers and home movers with student loans secure the right mortgage for them.
If you’d like to book a FREE, no obligation consultation with one of our award-winning advisors you can contact us HERE.
There are plenty of factors that need to considered when it comes to this question.
Indeed, the mortgage versus student loan debate will always be based on the longer term objectives of the individual and how they feel about debt.
We can put you in touch with a financial advisor we work closely with, who can discuss this with you and provide advice tailored to your circumstances.
If your income is below the repayment threshold for your plan, you are not currently making any student loan repayments. In this case, your loan will have little to no impact on your mortgage application because there are no monthly repayments for a lender to factor in.
However, if your salary is likely to increase (and therefore trigger repayments in the future), some lenders may take a view on your potential future commitments.
