With the average UK student debt now exceeding £40,000, it’s no surprise that many first-time buyers wonder whether they can secure a mortgage while still carrying a student loan. After all, buying a home is one of the biggest financial commitments you’ll make in your lifetime, and managing a student loan on top of that can seem daunting.
The good news is that yes, it is possible to get a mortgage while having a student loan, but it comes with a few considerations. Lenders take a range of factors into account when assessing your mortgage application, including your income, debt, and overall financial health. So, if you’re wondering how your student loan might affect your ability to get a mortgage, here’s everything you need to know.
1. How Student Loans Impact Your Mortgage Application
When you apply for a mortgage, the lender will look at your debt-to-income ratio, which is a measure of how much of your income goes towards paying off existing debts (like your student loan) versus how much is available for new obligations (like a mortgage).
A student loan is a debt in the eyes of the lender, even though it may not work in exactly the same way as other forms of borrowing, such as credit card debt or personal loans. It’s typically seen as a long-term liability because repayments often last for several decades (in the case of UK student loans, up to 40 years for some).
However, the good news is that student loan repayments are generally considered lower risk compared to other debts, since they’re fixed and based on income (in the UK, repayments are income-contingent).
But the key factor here is how much of your income is already committed to paying off your student loan. If you have a significant monthly student loan payment, it could limit how much you can borrow, as your monthly mortgage payment needs to fit within your overall budget.
2. What Lenders Look at When Assessing Your Mortgage Application
Mortgage lenders use a variety of criteria to assess your eligibility, including:
• Income: Your earnings are the first thing lenders look at. The higher your income, the more you may be able to borrow. If your income is low, you may find it harder to meet mortgage affordability criteria, especially if you have a large student loan payment.
• Debt-to-Income Ratio (DTI): This is one of the most important factors. Lenders typically want your monthly debt repayments (including your student loan, credit cards, and personal loans) to make up no more than 40-45% of your gross income. If your student loan repayment eats into a significant portion of your income, this can affect the size of the mortgage you can afford.
• Credit Score: Your credit score is another critical factor. If you have a good credit score (typically above 650), you are more likely to secure a competitive mortgage rate, even with a student loan. However, if you’ve missed student loan payments or have other negative marks on your credit history, it may hurt your chances.
• Deposit Size: The larger your deposit, the less risk you present to the lender. A bigger deposit means that the lender is more confident in your ability to repay the loan, and it may help offset the impact of your student loan debt. For first-time buyers, the minimum deposit required is typically 5-10% of the property’s value, but the more you can put down, the better your chances.
3. How Student Loans Are Treated by Mortgage Lenders
In the UK, student loan repayments are deducted from your salary automatically once you earn over a certain threshold, which depends on the type of student loan you have. The repayment amount is usually a small percentage of your income (typically 9% for Plan 2 loans, which apply to most students who started their degree after 2012). As such, your student loan repayments are often seen as manageable and predictable by lenders.
However, mortgage lenders don’t always look at the actual monthly repayment you’re making. Instead, they typically consider the total amount of student loan debt you have when assessing your affordability.
Here’s how your student loan might impact different types of mortgages:
• Standard Residential Mortgages: For the most part, your student loan won’t directly affect your ability to get a mortgage. Lenders will consider your income, credit history, and overall debt-to-income ratio. However, the monthly repayment could impact your affordability calculations and reduce the amount you can borrow.
• Help-to-Buy and Shared Ownership Schemes: These government-backed schemes, which are designed to help first-time buyers, may be slightly more flexible when it comes to student loans. However, they still assess your overall affordability, so your student loan will be factored into the equation.
• Buy-to-Let Mortgages: If you’re considering a buy-to-let mortgage, lenders may take a more conservative approach to assessing your student loan debt, especially if your income is more geared towards paying off the loan rather than earning rental income.
4. Managing Your Student Loan While Applying for a Mortgage
If you have a student loan and are thinking about applying for a mortgage, here are some practical steps you can take to improve your chances:
• Check Your Credit Score: Before applying for a mortgage, check your credit report to ensure that everything is in order. If there are any missed payments or errors, try to resolve them to improve your score.
• Save a Bigger Deposit: A larger deposit (10% or more) can give you access to better mortgage rates and may help offset the impact of your student loan when calculating affordability.
• Pay Down Other Debts: If you have other high-interest debts (like credit card debt), paying them off can improve your debt-to-income ratio and make it easier to secure a mortgage.
• Consider a Joint Mortgage: If you’re buying with a partner, their income and financial situation will also be taken into account. If they have a lower debt-to-income ratio, it could help balance out the effects of your student loan.
• Be Realistic About What You Can Afford: With a student loan, it’s especially important to ensure that your monthly mortgage payment, combined with your loan repayments and living expenses, is sustainable. Don’t stretch your finances too thin by over-borrowing.
Final Thoughts
Yes, you can get a mortgage with a student loan – it’s just important to understand how your student debt may affect your mortgage application. While lenders will take your student loan into account, they will also consider other factors like your income, credit score, and deposit size. By managing your debt wisely, saving for a larger deposit, and ensuring your finances are in good shape, you can improve your chances of securing a mortgage, even with student loan debt.
If you’re unsure about your mortgage options or how your student loan might impact your affordability, it can be helpful to speak with Durham mortgage broker, Dolphin Financial Services who can guide you through the process and help you find the best deal for your circumstances.
Please contact Thomas Knight, Mobile: 07539 550587, email: This email address is being protected from spambots. You need JavaScript enabled to view it., Website: www.dolphinfs.co.uk
