Can I get a mortgage if I have a Student Loan?
A few years ago, having a student loan wouldn’t have affected your chances of being accepted for a mortgage, however a mortgage market review which was introduced in 2014 changed the rules about affordability.
Student loans are now classed as committed spending. In theory they shouldn’t affect your ability to get a mortgage as they don’t appear on a credit check, but they do now show up on a lender’s affordability check.
Lenders will not expect you to have cleared your loan before applying for a mortgage but it’s important to note that it could be a deciding factor if you have several other credit agreements with other lenders. If you are thinking of applying you should start to think carefully about how you stack up to a lender in terms of what your credit score says about you, and therefore work hard to clear any credit card balances and not take on any new credit in the run up to applying for a mortgage. You should also encourage your partner to do the same if you are thinking of applying for a joint mortgage.
At present, you don’t start to repay any debt on your student loan until you earn £25,000 or more per year, and the amount you pay back is calculated at 9% on any pre-tax earnings, so if you are earning £25,000 per year your monthly payment is £30 and for earnings of £30,000 per year the monthly repayment rises to £67 per month. After thirty years anything unpaid is wiped as debt and it is estimated that 77% of people will not clear their full student loan debt. At present the average UK student loan debt is £32,220 (£11,740 for Scotland), but this figure must be set to rise with impending increases in university fees estimated to reach in excess of £10,000 per annum by 2020.
So, the sooner you think about your credit score the more likely you are to be in the best shape possible when the time comes to apply to lenders. Don’t panic. Overwhelming consensus suggests that overpaying on your student loan at present is not worth doing (although this may change if the rate set by the government does increase from its present 4.6% to its suggested 6.1%). For the time being, clear as much as you can from your credit cards, do not take further credit before you apply for your mortgage, make sure any utilities bills are paid in a timely fashion to keep your credit history looking healthy, and remember that having had some previous credit can be a very good thing from the lender’s perspective as it will show that you are able to budget and pay bills in a timely manner.
Most importantly, register to vote. If you aren’t on the electoral roll, you will not be considered for lending. https://www.gov-uk/get-on-electoral-role