Before 2014, a student loan shouldn’t have had any effect on your chances of being accepted for a mortgage.
However, the Mortgage Market Review (introduced in April 2014) tightened mortgage lending, meaning the rules around affordability changed.
This means that, alongside a host of other changes, student loans are now considered as “committed expenditure” by lenders when you apply for a mortgage.
Assessing your income and outgoings
When making a mortgage application, the lender will carry out an affordability assessment of you to ensure that you’ll be able to comfortably manage your repayments over the course of the agreement.
This is where your lender will look at your income – wages from your job or any benefits you receive – and your outgoings – such as your rent, bills, everyday spending and other credit agreements. Your outgoings generally consist of everything you spend on a monthly basis, which means your student loan will be included in this too.
These costs are important to your mortgage provider as they give them an idea of your spending habits and other financial commitments, which helps them to decide if you could realistically afford repayments on a mortgage of the size you’ve applied for.
Will I be able to get a mortgage if I have an outstanding student loan?
Although your student loan is now taken into consideration by mortgage providers, it doesn’t mean you’ll be unable to find a suitable mortgage. You won’t be expected to clear your student loan before you apply, but it could be the deciding factor if you have numerous other outstanding credit agreements with other lenders too.
It’s important to remember that your repayments on your student loan are tiered based on your earnings, and you should always be left in a comfortable financial situation after making that repayment. That’s why clearing any other credit agreements beforehand should be higher on your priority list, as these are likely to have much more of an influence on your mortgage application.
To give yourself the best chance possible of being accepted, it’s a smart idea to start paying off any other credit agreements you’ve got at least six months before you apply for your mortgage. For example, if you’ve got a credit card, it’s a good idea to start working towards clearing the balance on this as fast as you can, as well as repaying any other loans you may have and getting out of your overdraft if you have one.
You can also maximise your chances by reining in your spending during the run-up to making an application. It may seem like a hassle to keep such a close eye on your spending, but remember, the affordability checks are there to protect you from borrowing more than you can realistically afford to repay. Once you have to budget each month for your mortgage, you may not have the money free to spend on trips to pricey restaurants or on regular holidays. If you have any doubts about whether you’ll be able to keep up with your reduced spending habits, it may be a better idea to lower your expectations and borrow a smaller sum.
For more tips on how to increase your chances of getting a mortgage, head here.
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Intelligent Lending Ltd (Credit Broker). Capital One is the exclusive lender.