Will a student loan affect your ability to get a mortgage?
Many students leave university having borrowed £10,000s in student loans that'll take decades to repay. Will it affect your ability to get a mortgage now or in the future? The answer is yes, it can – but not quite in the same way as other debts such as credit cards or loans would. This short guide explains what you need to know.
This is the first incarnation of this guide. If you've feedback, please let us know in the student loans and mortgages forum thread.
Student loans DON'T appear on your credit report
One of the biggest factors determining whether or not you'll be accepted for a mortgage is how you've handled credit in the past. To find out about this, lenders will look at your credit report.
A credit report is held by a credit reference agency (of which there are three main ones in the UK: Experian, Equifax and TransUnion). If you've had a credit card, loan, mobile phone contract or bank account in the past, the lender (or phone company) will have been reporting whether you paid on time to one or more of the credit reference agencies.
However, unlike other forms of debt – such as commercial loans, credit cards, being in your overdraft, car finance payments, and so on – student loans DON'T usually appear on your credit report.
This is important. While a mortgage lender might look at your credit report and reject you for being too overdrawn, relying too heavily on credit cards, or missing a car loan repayment, you won't fail a credit check for having a student loan – whether you owe £1,000, or £100,000.
In fact, the lender won't usually be able to tell from your credit report alone that you even have a student loan. (Though there are some rare exceptions, see why a student loan might appear on your credit report).
How does my credit report impact my mortgage chances?
If you've a history of missed payments, or in fact you've just not had much credit in the past, it's going to be difficult for lenders to know if you're likely to repay them, and it's issues like this that can easily scupper any mortgage application. Conversely, a history of well-managed credit will make a mortgage lender more likely to accept you.
So before any mortgage application, it's vital you...
Check your credit report. See our guide on checking your credit file for free.
Iron out any creases in your report. See our guide on improving your credit report.
But student loans DO affect how much you'll be able to borrow
As well as checking your credit report, there's another big check that all lenders carry out when you apply for a mortgage. It's referred to as the 'affordability' test.
This is essentially the lender calculating if it thinks you could afford the mortgage repayments – importantly, not just at the current rate, but also in the event interest rates were to rise (something that's known as 'stress-testing').
Each lender uses a different method to judge a borrower's 'affordability', but in simple terms they'll look at your incomings and outgoings. (For more details about how a lender works out your affordability, see our how much can I borrow? guide.)
In brief, this is where having a student loan DOES normally impact how much you're able to borrow from a mortgage lender (and, in some cases, whether you'll be able to borrow at all). That's because your monthly student loan repayments will be viewed in the same way as your other regular expenses, such as childcare, commuting, gym membership, streaming service subscriptions and other debt repayments.
To be clear, it's NOT the size of your student loan that counts – so it doesn't matter whether it's £1,000, £100,000 or even £1 million. What's important is how much of your student loan you repay each month, as that's money from your salary that WON'T be available to put towards the mortgage.
So, the more your student loan lowers your take-home pay, the less a lender might be willing to let you borrow.
Here's an example...
Andy Apprentice doesn't have a student loan. He earns £40,000/year.
Samira Scholar also earns £40,000/year. She graduated in 2018 having borrowed £50,000 on a 'Plan 2' student loan. Her loan repayments are £95/month.
Tam Tomorrow is a future graduate who started uni in 2024 – let's imagine they leave with a £10,000 student loan, and will also earn £40,000/year. Under the new 'Plan 5' system in England, their loan repayments will be £113/month.
If all else is equal between the three, Andy – without any student loan repayments – will be seen by lenders as being able to afford the highest mortgage repayments. Despite the fact that Samira’s total loan amount is greater than Tam’s, her lower monthly repayments mean she’ll be seen as being able to afford higher mortgage repayments than Tam.
Importantly, though, the hypothetical example above hinges on the fact that all three potential borrowers earn the same salary.
The hope is that by going to university you'll be able to get a higher-paying job than you otherwise might, which would mean that you'd be able to get a bigger mortgage, even with your monthly student loan repayments.
However, it's worth noting the "graduate premium" has eroded in recent years, and with the recent raises in minimum wage, many graduates leave university and get jobs (if they are able to land one) that don't pay a lot more than roles you don't need a degree for.
How to boost your mortgage affordability
Just as you can improve your credit score, there are also ways of boosting your perceived mortgage affordability.
One of the main ways is by building up your deposit. That's because the bigger your deposit, the smaller your loan-to-value (LTV) – in other words, the less money you're borrowing on a mortgage compared to the value of the property.
For more on the impact of LTV, see our how much can I borrow? guide. In brief though, the bigger your deposit / smaller your LTV, the...
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Bigger choice of mortgage deals you'll have. This particularly applies where you've got at least a 10% deposit.
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Better interest rates you'll be eligible for. Interest rates typically get better at 90% LTV (10% deposit), 80% LTV (20% deposit), 75% LTV (25% deposit), and 60% LTV (40% deposit).
Building up a deposit can be tough but it's still really important. One of the best free ways of doing this is by opening a Lifetime ISA (LISA). You can save up to £4,000 a year in a LISA and anything you do save will have a 25% Government bonus added to it for free (so up to £1,000 of free cash per year).
There are also other ways of improving your perceived affordability, and your mortgage chances overall, such as cutting back on your outgoings in the months leading up to a mortgage application. We go through 17 top tips in our Boost your mortgage chances guide.
It's also worth having a play with our Mortgage affordability calculator, which'll give you a rough estimate – based on your current deposit, incomings and outcomings – of how much a lender will likely let you borrow.
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