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Tuition fees reform: can student debt stop you getting a mortgage?

Lenders may consider your student loan repayments

Prime minister Theresa May has announced a shake-up of university tuition – but if you already carry student debt, you may wonder whether it could hold you back from buying a home.

Earlier this week, the prime minister launched a review into tuition fees and university funding. While Mrs May ruled out scrapping fees entirely, she said fees had failed to deliver sufficient competition on price, and that students in England face ‘one of the most expensive systems in the world’.

With their low interest rates and generous repayment terms, student loans may seem like one of the least worrying forms of debt. But the way these loans impact on your finances are not always obvious, especially when it comes to a mortgage application.

  • If you’re thinking of buying your first home, call Which? Mortgage Advisers on 0808 252 7987 impartial, expert advice.

Do student loans affect my credit score?

Student loans aren’t the same as normal debt, as they don’t appear on your credit history. The only exception to this is borrowers who took out their loans before 1998 and defaulted on a payment.

This means lenders won’t know about the size of your student loan unless they specifically ask about it.

In most cases – say, a credit card application or a mobile phone contract – lenders aren’t likely to ask for your student loan details.

The major exception, however, is a mortgage application.

Will a student loan stop me getting a mortgage?

Most mortgage lenders will ask you if you’re carrying a student loan debt, but it’s not necessarily for the reason you think.

A large debt won’t automatically lead to a black mark against your application in the way a large credit card debt or personal loan might.

Instead, lenders will look at how much you have to repay each month and how that will affect your ability to meet your mortgage payments.

Due to the way student loans are repaid, people who have larger incomes are likely to see a larger impact from their student loans.

In our table below, we set out how your student loan might affect how much you can borrow.

Keep in mind that this doesn’t take into account your expenses, or any other loans or obligations you might have. So a lender may offer you more or less, depending on your personal circumstances.

How much do I have to repay on my student loans?

Unlike other types of debt, you only have to pay back your student loans after you pass a certain income threshold.

If you started studying before 1 September 2012, you’ll need to start repaying your loans when you earn more than £17,775 a  year. For these types of loan, your interest will be tied to inflation – currently, the rate is 1.5%.

If you started university after this date, you’ll only need to start paying when you earn over £21,000. For these types of loans, your interest will be inflation, plus 3%.

You pay back your student loans within your taxable income, just like a tax or National Insurance contributions.


What changes is the government considering?

The review announced by Mrs May this week will examine all aspects of post-18 education, including academic and technical degrees.

Currently, fee levels for courses are capped at £9,250 per year. A temporary freeze has been placed on this cap, which is expected to be extended until the end of the review.

Last year, the government announced the earnings threshold before graduates need to repay will rise to £25,000 in the 2018-19 tax year, which will apply to loans taken out after 2012.

The review is set to report its findings in early 2019.

Will other debts stop me getting a mortgage?

If you have debts when you’re trying to take out a mortgage, this could hinder your chances of being approved. This include credit card debts, car loans or personal loans.

Similarly to student loans, an outstanding debt will be factored into your ability to repay your mortgage each month.

But these types of debts will also appear on your credit history and may pull down your overall credit score. Lenders may refuse to lend to a person who doesn’t meet their creditworthiness criteria, even if their income is sufficient to cover payments.

While a student loan is not necessarily a concern when you’re applying for a mortgage, you should try to clear other types of debt before making an application.

You can find out more in our guide to getting a mortgage with credit card debt.

Your home may be repossessed if you do not keep up repayments on your mortgage.

Which? Limited is an Introducer Appointed Representative of Which? Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited.

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