Let’s face it: university education in the UK comes with a high price tag. Almost every university graduate comes out of their studies with a high student debt.
In such a situation, getting a mortgage for a home might seem like a scary proposition. You might also be apprehensive about whether the student loan will affect your ability to get a mortgage.
That’s why today, we’re going to take a look at how getting a student loan might affect your mortgage application.
We’ll also understand how you can get a mortgage for your dream home despite having a student loan.
Let’s get started.
Table of Contents
- Does A Student Loan Affect Mortgage Application Chances?
- Is It Mandatory To Declare A Student Loan On Your Mortgage Application?
- Is It Possible To Consolidate Student Loans Onto A Mortgage?
- Which Lenders Offer Mortgages To People With Student Loans?
- What Is A Buy-For-Uni Mortgage?
- Alternative Financing Options
- Frequently Asked Questions(FAQs)
Does A Student Loan Affect Mortgage Application Chances?
An active student loan shouldn’t prevent you from getting a mortgage altogether, but it can affect your application to an extent.
After the Mortgage Market Review of 2014, lenders also look at student loans, along with other types of debt, to assess the affordability of a loan applicant.
However, since student loans are considered different from other loan types, such as credit card debt, they shouldn’t negatively impact your application.
For starters, student debts don’t appear on the credit file, so they won’t appear in the credit report inspection.
Also, since a student loan means you’re achieving higher education, which should lead to a promising career, they are considered low-risk loans as they might actually improve your employability and hence repayment potential.
The actual aspect to worry about here is not if you have a student loan but how much of a student loan you have.
The situation becomes tricky if your loan amount is very large and you have other loans besides the student loan.
Lenders usually have a maximum acceptable debt level, and the total outstanding loans must meet this criteria for the loan to be granted. A lender will factor in the monthly repayment of your student loan against the maximum affordability.
Also, how much you earn after graduation matters. Student loans usually require you to start repayments once you’ve reached a minimum salary threshold.
So, if you’re not past that yet, you won’t be penalised, even if you haven’t started repaying the student loan.
Overall, the amount of your student loan and other loans is the primary factor to consider here.
Is It Mandatory To Declare A Student Loan On Your Mortgage Application?
Yes, absolutely!
You shouldn’t withhold any financial liabilities and declare everything on your mortgage application, even a student loan.
Keeping back any financial information during your mortgage application might affect your future ability to get a mortgage.
And given that student loans are not included in your credit file unless you defaulted on a loan taken before 1998, there’s no point in not declaring them. As explained in the previous section, they won’t have a negative impact, it will just affect the amount that can be lent.
Also, even if you don’t inform the lender directly, they will be able to know of the repayments from your proof of income documents, such as bank statements, payslips income tax returns, etc. So, it’s best to declare it beforehand and ensure complete transparency.
Is It Possible To Consolidate Student Loans Onto A Mortgage?
It is, but you need to understand whether you actually want to do this.
Student loans are charged at low interest rates and need to be repaid only when you’ve achieved a certain level of income.
If you can’t get to a position to repay it within 30-40 years, it is completely wiped, no matter the amount.
Even if you’ve started repayments, the impact on your affordability may be minimal. So, instead of consolidating, you might want to use the money better, such as making a larger deposit. This way, you’ll borrow less and end up paying less interest in most cases.
If you’re still unsure about this, we recommend contacting an experienced mortgage broker who can help you through the decision-making process.
Which Lenders Offer Mortgages To People With Student Loans?
Most high-street and specialist lenders will happily offer you a mortgage even if you have a student loan, provided you meet their other lending criteria.
In fact, certain areas of study will increase your chances of getting a mortgage and might even offer you a higher mortgage amount, for example if your degree was in a certain specialism.
If you’re still a student, getting a mortgage on income such as a stipend might be a bit tougher. However, some lenders might offer special products, such as buy-for-uni mortgages.
What Is A Buy-For-Uni Mortgage?
A buy-for-uni mortgage is a special type of mortgage that is a bit similar to a buy-to-let mortgage, but it’s only for students.
It allows you to buy your own home and rent out any extra rooms to cover your mortgage expenses.
However, interest rates on these loans are higher than usual, and the number of lenders offering them is also very low, they are extremely niche products.
So, it’s best to consult an experienced mortgage broker before considering this option.
Alternative Financing Options
If you’re still a student or are fresh out of university, your income level might not be high enough to meet the lender’s criteria. In such a case, it’s best to opt for any one of the options mentioned below:
- Joint Mortgage
- Joint borrower/Sole Proprietor
- First-time buyer schemes
You can connect with our mortgage advisors to discuss more about these options and your unique circumstances.
Frequently Asked Questions(FAQs)
1. Is paying off a student loan before applying for a mortgage better?
Not necessarily. If your loan amount isn’t huge or you don’t have any other significant loans, then a student loan will not stop you from getting a mortgage in any way (its just important that it is included as a repayment on the chosen lenders affordability calculations).
In fact, money you might use to pay off the student loan might instead be used to put down a larger deposit on your mortgage, resulting in lesser borrowings and lower interest.
2. Can a student loan count as income on my mortgage application?
No, a student loan does not count as income since it’s not taxable, and you’ll eventually need to pay it back. No form of student finance is classified as income for a mortgage.
Your home may be repossessed if you do not keep up repayments on your mortgage.
All content is written by qualified mortgage advisors to provide current, reliable and accurate mortgage information. The information on this website is not specific for each individual reader and therefore does not constitute financial advice.
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