How a Student Loan Affects Your Mortgage Application

It’s no secret that a university education in the UK comes with a hefty price tag, leaving most graduates in considerable debt. Whether you’ve completed your studies or are still considering your career path, it’s helpful to know how your student debt will affect you, especially when buying a home.

In this article, we’ll look at how student loans can impact your mortgage application and how the right advice can help you secure the home loan you need, no matter the size of your debt.

Can you get a mortgage with a student loan?

A student loan won’t usually prevent you from getting a mortgage, but it can impact your application. Since the 2014 MMR (Mortgage Market Review), mortgage lenders have had a responsibility to look at student loans alongside other types of debt when assessing an applicant’s affordability.

That said, student loans are slightly different to other debts, so they won’t have as much of an impact as, credit card debt, for example. Student debt won’t appear on your credit file, so it won’t play into the credit search aspect of your mortgage application.

How will it affect the application?

A student loan is one of the lower-risk debts from a mortgage lender’s perspective, as it will generally lead to a graduate career, which looks good for your long-term repayment potential. The main element of concern for lenders is how much your student loan repayments are. This is because they must deduct any existing financial responsibilities from your income before calculating the loan size you can afford.

Some mortgage lenders have a maximum acceptable overall debt level for applicants. If you have very large student debts and/or considerable other outstanding debts, this could potentially impact the amount they are willing to lend you. There are bad credit lenders, however, who specialise in helping applicants in these circumstances.

The amount that student loan repayments will affect your income depends on when you took the loan and how much you earn. Student loans are set up so you only begin making repayments once you’ve achieved a minimum salary threshold post-graduation.

The good news is that those who do not earn enough to repay loans won’t be penalised. As lenders understand that your repayments will only rise as your salary does, they won’t be worried about future repayments affecting your affordability.

Did you know… You could access 30% more of the mortgage market with a broker on your side.

Do you have to declare a student loan on an application?

The simple answer is yes, you do. Withholding information about your finances during a mortgage application constitutes mortgage fraud, which will certainly impact your future ability to get a mortgage. It’s not worth the risk, especially since obtaining a mortgage with student debt is usually achievable.

Since student loans are not recorded on your credit file unless you’ve defaulted on a student loan taken out before 1998, many people mistakenly believe that mortgage lenders won’t find out about their student debt.

The truth is, no matter how you’re paid, your student loan repayments are recorded. They appear automatically alongside tax and pension outgoings on a PAYE payslip, and you have to declare them as part of your tax return if you’re self-employed. All mortgage lenders will ask for proof of income; therefore, it’s impossible for them to miss your student loan, even if you don’t inform them directly.

How a broker can help you get a mortgage with student debt

A broker with experience in arranging mortgages for students and/or those with student debts will be able to guide you towards those lenders who are most likely to consider your circumstances.

In addition to tailoring advice specifically to suit your needs, the brokers we work with have access to the whole mortgage market, which means that they may be able to find you a mortgage even if you’ve been turned down elsewhere.

They can also sometimes access lenders and rates not available to the general public, including mortgage providers who specifically cater to borrowers with high student debts.

Can you consolidate your student loans onto a mortgage?

It’s possible to consolidate your student loan debt onto a mortgage, but the question has to be posed as to why you would consider this. First, student loans are charged at low interest rates and only repaid when you earn a certain amount. If you haven’t repaid within 30 years (or 40 years if you start studying from 2023 onwards), it’s completely wiped, no matter how much debt remains.

Even if you’re currently making repayments, the impact they will have on your overall affordability is likely to be minimal. While removing the debt entirely will improve your overall affordability, you should consider whether your money could be better used to clear more pressing debts or as a larger deposit.

Larger deposits improve your chances of getting a mortgage overall but will also reduce the length of your mortgage term and, therefore, the amount of interest you’ll pay. A broker with experience in this area will be able to advise you about what’s best for your circumstances and, of course, find a lender willing to consolidate your debts with your mortgage if that’s what you choose to do.

Which lenders are happy to accept student loans?

The vast majority of mortgage lenders are happy to accept people with student loans so long as they have an adequate and reliable income. On the contrary, depending on your area of study, certain graduate careers will improve your mortgageability and, in some cases, even increase the amount you can borrow. Check out our guide to professional mortgages for more information.

You won’t need to provide a larger deposit than any other applicant, and a typical minimum deposit requirement on a residential mortgage is 5%. However, if you can afford to offer a larger deposit, this will usually give you access to more favourable interest rates.

If you’re still studying, a student mortgage can be more difficult, even if you’re a PhD student with a stipend income. It is, however, possible to get a mortgage whilst you’re a student, and there are even lenders willing to provide buy-for-uni mortgages, which can help you earn a profit whilst studying. In either case, a specialist lender is more likely to be required.

Alternative finance options

Whether you’ve completed your studies or not, you’ll need an adequate income to be considered for a mortgage. Student finance is not classed as income and cannot be used as such for mortgage purposes; however, some specialist lenders are willing to look at stipends on a case-by-case basis.

If you’ve recently completed your studies or are working part-time while you study, your salary and savings may not be substantial enough to get approved for a mortgage that will finance the type of property you want.

There are absolutely mortgage options available to those on a low income, however, and you may still be able to secure enough finance to buy your dream home through one of the following methods:

Speak to a broker experienced with student debt

Whether you’re concerned that your student loan will affect your ability to get a suitable mortgage, or you’re looking to buy a property as an existing student, call today on 0330 818 7026 or make an enquiry to be immediately matched with a mortgage broker who specialises in helping people with student debt get onto the property ladder.

All of the brokers we work with offer their initial consultations for free, and you’re not obligated to proceed, so you have nothing to lose.