How student debt can impact on a mortgage

March 10, 2016 by Brendan O'Neill

Advice & Tips

As students leave university, they are faced with the prospect of repaying their tuition loans, and possibly their accommodation costs and much more. This can soon add up to thousands of pounds of debt, which may have an impact on future mortgage applications.

Although a student loan shouldn’t appear on your credit file in the same way as a credit card or other loan, it is usually taken into account when calculating affordability for a mortgage. However, the interest rates on a student loan are generally favourable and the monthly repayments are likely to be reasonable. To prepare for applying for a mortgage, save as much as you can for a deposit, perhaps taking advantage of the Help to Buy ISAs which are available.

Minimise other debts so that the student loan won’t have a huge impact on affordability tests. If the student loan is the only debt, there is a much higher chance of being approved for a mortgage, so reduction of other debts should be a priority.

Another solution is to save the minimum 5% deposit and then secure the best available fixed rate deal. Overpay each month using the money which you would have saved towards a deposit. At the end of the term, you will owe slightly more on the property and may be eligible for a better deal when you re-mortgage.

Consult with a mortgage adviser who has taken the CeMAP training and has plenty of experience dealing with this type of situation, so that you are sure of obtaining the best advice.