So, you’re thinking of getting your own place and ditching the renter's life. That’s amazing! Congratulations. In the back of your mind, you’re thinking about something you’re scared is going to affect your chances of getting a loan… your student loans. But do student loans affect mortgages? Well, that’s the very question we will answer right here and now.
Do Student Loans Affect Mortgages?
Let’s answer the question, ‘Do student loans affect mortgages’ immediately to help you understand where you stand. It’s understandable to be concerned about your chances of being ruined by a debt you’ve had for many years.
However, usually, student loans don’t affect your chances of getting a mortgage. That doesn’t mean it doesn’t affect your application, but the chances of it preventing you from acquiring a mortgage aren’t high.
In 2014, the HM Government conducted a review of the mortgage market known as the Mortgage Market Review (MMR). So, what was the point of this review? It was to enact changes based on findings they’d uncovered during the review.
The main conclusion was that there were far too many instances of high-risk lending pre-2008. There were many end results and changes to mortgages in the UK, but one that was implemented was called a ‘financial stress test.’
This test was to ensure lenders were able to make the payments required on a mortgage. To help establish affordability, things like mortgage payments were brought into the equation more prominently than before the MMR.
Of course, student loans are vastly different from other forms of debt. They won’t have the same impact as things like credit card debt. Mortgages don’t even appear on credit files, so in terms of a credit search, student loans won’t affect the credit aspect of mortgages. You can still get a mortgage if you have a student loan.
The thing is, student loans aren’t looked at as high-risk debts. Lenders see the potential in you entering a graduate career, meaning you’d earn more money. Assuming you’re making the payments and aren’t defaulting, they have no reason to view it as a concern.
Do You Have To Declare Student Loans When Applying For a Mortgage?
Yes, you will have to declare a mortgage. By withholding critical information regarding your finances, while applying for a mortgage, you’re engaging in mortgage fraud. If you were worried about your student loan affecting your mortgage chances, this is definitely disqualifying.
While it’s true that student loans don’t appear on your credit file, that doesn’t mean it’s not something a lender will find when they dig deep into your finances. Student loan payments are recorded; they will appear alongside things like your taxes and pension payments on PAYE payslips. They will see it regardless, so don’t risk it by not declaring it. This mistake can cost you significantly.
Are You Able To Combine Your Student Loan Into Your Mortgage?
In some cases, you are able to consolidate your student loan debt onto your existing or new mortgage. This is dependent on the lender. The better question to ask is, why would you want to do this? Student loans are known for charging extremely low-interest rates, having earning limits before payments are required, and having limits on how long the debt can exist before being wiped clean.
When you consolidate your student loan, those benefits disappear. You’re paying higher interest on the amount, have to pay regardless, and even if you exceed the 30/40 (2023 onwards) years limit, that loan will still exist.
While this seems like a good idea, the negatives far outweigh the virtually zero benefits.
Should I Be Working To Clear My Student Debt Before Applying For a Mortgage?
Honestly, no. Paying off your student can help you, but not if you’ve got other- more pressing- debt existing on your credit record. You want to consider that debt first before even considering paying off your student loans. Why? Because a student loan has minimal effects on your affordability. It’s simply not necessary to focus your efforts on removing debt that’s low-interest, earning controlled, and designed to be long-term.
What Types Of Mortgages Are There?
There are several types of mortgages you can apply for, some easier to get than others:
- Interest only: pay the interest only during the mortgage term and the initial amount at the end of the term. Make sure you’ve got the money come the end of the mortgage.
- Variable rate: the interest rates can shift at any time.
- Fixed-rate: the interest rate is set in stone.
- Buy-to-let: for landlords looking to own property to rent. This focuses more on earning potential than your financial situation (although that’s still considered).
- Capped rate: mortgage won’t rise above a specified rate.
- Offset: link your mortgage and savings to decrease your interest charged.
- 95%: this mortgage allows you to pay a 5% deposit and the other 95% the lender puts up. This is a great option for first-time buyers needing help to get a proper deposit together.
- Help-to-buy: using a lifetime ISA, you get money from the government capped by them, matching 25% of the money saved in the ISA, but it’s capped at £1000 a year.
- Flexible: this allows for more payment options.
- Joint: when two or more people are looking to have a mortgage together.
- Guarantor: this mortgage allows someone who’s unable to get a mortgage on their own to have a guarantor to take on responsibility for the deal.
The process of getting a mortgage can be extremely stressful. We get that, but don’t let the fear of your student loan prevent you from taking a monumental step toward owning your own home. If anything should be taken away from the answer to the question of ‘Do student loans affect mortgages,’ it’s the simple truth that there’s more risk in ignoring it and hoping nobody notices than being upfront about it.
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