University education comes with a hefty price tag in the UK, and it can leave you in considerable debt.
Student loans can run into tens of thousands of pounds, and it’s important to know how they can affect your future, especially when buying a home.
This article explores how student loans can affect mortgage applications and how you can increase your chances of a positive outcome.
Can You Get Mortgages With Student Loans?
Yes. Although it can impact your application, having a student loan doesn’t disqualify you from getting a mortgage.
Responsible mortgage lenders must check student loans alongside other types of debt when assessing whether or not you can afford the mortgage.
However, although they’re technically debts, student loans aren’t looked at in the same light as other types of debts.
Student loans don’t appear on your credit file, so the amount you owe and repay doesn’t show up on any credit record.
Your student loan won’t play into the credit search aspect of your mortgage application and won’t have as much impact as other debts like credit cards or personal loan debts.
With the right guidance from a mortgage advisor or broker, you can access mortgages that best fit your circumstances and finances.
They can provide tailored advice to suit your needs and give you access to lenders most likely to accept your situation.
How Do Student Loans Affect Mortgage Applications?
Lenders will consider how the student loan affects your affordability when assessing how much money they can lend you through a mortgage.
Some key areas they’ll be interested in include:
Your Monthly Repayments
Lenders need to deduct any existing financial responsibilities from your income to calculate the size of the loan you can afford, including the amount you pay out every month on your student loan.
Lenders want to be sure that what you have left after spending and debt commitments is enough to afford mortgage repayments safely.
Generally, the more you pay monthly toward your student loans, the less you can borrow.
The Outstanding Balance
Lenders will also be interested in how much is left to repay on your student loan to get a full picture of your financial commitments in the long run.
A mortgage is among the most significant commitments you’ll make in your financial life and will likely involve periods of more than 20 years.
Some lenders set minimum acceptable overall debt levels for borrowers, so large student loans can impact their willingness to lend and at what terms.
They must be sure you can cover the cost of the mortgage and the student loan with your earnings.
This can depend on when you took the loan and how much you earn since most student loans are set up so that you only start making repayments after achieving a certain salary threshold.
If you don’t yet earn enough to repay student loans, you don’t have to worry since lenders understand that you’ll only start repaying as your salary increases, meaning it won’t affect your affordability.
What Deposit Amount Is Needed To Get A Mortgage With Student Loans?
Like all mortgage applications, the higher your deposit, the more favourably you’ll be viewed by mortgage lenders.
The deposit required by the mortgage lender will depend on the price of the property you’re buying and whether you’re classed as high or low risk.
Most lenders set the maximum loan-to-value (LTV) ratio at 90%, meaning you’ll need a deposit of 10%.
The LTV shows how much of the property you own outright. Some can accept as little as a 5% deposit, while others will need you to put down more if you’re considered higher risk because of issues like bad credit.
You’ll need adequate income to save and be considered for a mortgage, and student finance is not classed as income.
Although repayments towards student loans can hinder saving for a mortgage deposit, you can consider mortgage options for low-income earners like joint mortgages, guarantor mortgages and government schemes that help first-time buyers.
Mortgage advisors or brokers can help you find the best option for you.
Should I Disclose My Student Loans On Mortgage Applications?
Yes. Your student debt is an important part of your overall financial situation, even if you’re not making any repayments.
Withholding information in your application can be considered mortgage fraud, and it’s not worth the risk because you can still qualify for a mortgage with student loans.
You’re legally required to be honest and transparent in mortgage applications and give lenders a clear and realistic picture of your finances.
Although the student loan will not appear in your credit file, the repayments can still appear in your PAYE payslip and tax returns, even if you’re self-employed.
It would be difficult for lenders to miss the student loan since they’ll require you to present proof of income to qualify for a mortgage.
What Should Be My Earnings To Get A Mortgage With Student Loans?
Lenders will use multiples of your salary or income to determine how much you can borrow.
Some offer loans four times your annual income, while others offer 4.5 x, 5x, or 6x under the right conditions.
Your income must be sufficient for your desired property, but affordability is the most important factor.
Mortgage lenders assess your debt-to-income ratio to determine your affordability.
They’ll look at your monthly income minus any outgoings, including student loan repayments.
A lower debt-to-income ratio is more attractive because it shows lenders you have more disposable income for mortgage repayments.
Do Student Loans Affect Mortgage Applications? Final Thoughts
Student loans can only affect your mortgage application if they affect your affordability.
They’ll not affect your credit score because they don’t appear on your credit file.
Mortgage advisors with experience arranging mortgages for applicants with student loans can help you find a suitable option to suit your circumstances.
You can also increase your chances by having a healthy deposit and increasing your income to ensure you’re attractive to lenders and can afford to repay the mortgage.
Call us today on 01925 906 210 or contact us. One of our advisors can talk through all of your options with you.
