Will a Student Loan Affect Your Mortgage Application?

University, work, and buying a home. It’s a path that many of us expect life to follow. But when the time comes to apply for a mortgage and you start to review your finances, it can be surprising to some just how quickly student loans can add up.

So, can student loans stop you from getting a mortgage?

A student loan is a major financial commitment, and at times can feel like a shadow that follows us into adulthood. But don’t worry – you can still find a mortgage that matches your needs. For aspiring homeowners, the key is to understand exactly how your student loans will be viewed by lenders.

In this article, we explore how UK mortgage lenders view student loans, whether repayments affect affordability, and how much impact they really have on your chances of being approved. Let’s jump in.

Do Mortgage Lenders Count Student Loans as Debt?

Yes, mortgage lenders in the UK will take student loans into account, but they do not treat them the same as other forms of borrowing. In fact, student loans really sit outside what we would call the ‘traditional debt rules’ because repayments will rise and fall with income, rather than following a fixed monthly schedule.

In short: It is this key feature of student loan debt that plays a big part in understanding how lenders will assess loan risk during your mortgage application.

As a result, when applying for a mortgage with student loan debt, the balance itself rarely matters. This may surprise a lot of people, but what lenders will be specifically looking at is the repayment amount that shows on your payslip.

Why?

Well, should your income drop, then your student loan repayments will also fall or potentially stop. And on the other hand, should your income increase, repayments will rise gradually, based on a specific student repayment percentage plan.

This built-in flexibility comes with all student loans in the UK and as a result, carries much less weight when it comes to a lender’s risk assessment than many people may expect.

To demonstrate this more clearly, let’s compare this type of loan with a traditional credit card debt:

• A £3,000 credit card balance usually comes with a minimum payment that must be met every month, regardless of income. Missed payments will therefore affect your credit file, and the debt can never disappear on its own without consequence.

In comparison

• A student loan will not appear on your credit report, repayments are predicated on your earnings and can be paused if you’re below the income threshold, and any remaining balance is written off after a set number of years.

Because of this difference in structure and liability, lenders will typically focus on your overall affordability, and not just the student loan itself. Ultimately, as long as your set mortgage repayments sit comfortably within your financial budget, a student loan on its own is unlikely to block a mortgage application.

How Do Student Loan Repayments Affect Mortgage Affordability in the UK?

Student loan repayments can affect your affordability assessment and how much you can borrow, but only because they will inadvertently reduce your total disposable income. As such, lenders will not directly focus on your total student debt. Instead, they will look at your monthly repayments and how this affects your overall financial standing.

A simple trick to keep in mind is to understand that when lenders check affordability, they are asking a simple question: can you comfortably manage your mortgage alongside your other monthly commitments?

Yes, student loan repayments are part of your financial overview, but they’re only one piece of the puzzle and as highlighted before, they work differently from most other debts.

Ultimately, because repayments are linked to income rather than a fixed balance, lenders treat them differently from things like credit cards or personal loans. For most borrowers, student loan repayments can slightly reduce borrowing power, but will not directly prevent a mortgage approval on their own.

What Is the Student Loan Repayment Threshold?

In the UK, student loan repayments only start once your income goes above a certain threshold, and your exact student plan can be managed online directly via the Government Student Finance.

For example, Plan 2 loans currently require you to earn over £28,470 a year before deductions begin.

If your income is below this level, your student loan won’t reduce your salary. Once you earn above the threshold, repayments are 9% of your income over it and increase gradually as your earnings rise.

Here’s how student loan repayments can work in practice to affect your mortgage affordability:

• Income is Below the Threshold

If your earnings are under the repayment threshold, your student loan won’t reduce your salary, and so lenders generally don’t count it as a monthly outgoing.

• Small Repayments Above the Threshold

Earning slightly above the threshold triggers repayments, but these are usually modest. Lenders factor them in alongside other expenses without majorly reducing borrowing potential.

• Higher Earners With Larger Repayments

Even with bigger monthly repayments, the structure of the loan will make student loan repayments manageable, and most buyers will still be able to secure a competitive mortgage.

Need tailored advice on how your student loans will affect your mortgage?

At Boon Brokers, we offer expert, fee-free, whole-of-market mortgage advice. Our mortgage specialists take the time to review your income, outgoings, and student loan repayments to help you find a mortgage that truly fits your needs.

Do Student Loans Affect Your Credit Score?

No, in most cases, student loans will not affect your credit score and usually do not appear on your credit file in the UK.

This is because, unlike credit cards, overdrafts, or personal loans, student loans are collected through your salary once you earn above the repayment threshold. This makes missed payments extremely rare and almost impossible to avoid.

Do Mortgage Lenders Treat Student Loans Differently than Other Loans?

Yes, in the UK, student loans are treated differently from most other types of borrowing. Lenders recognise that student loan repayments are directly linked to your income, rather than a fixed monthly amount. This makes student loans less restrictive than traditional debts like credit cards or personal loans.

Below we have provided a quick breakdown of how different debts work in the UK:

• Student Loans: Repayments are income-based and automatically deducted once you earn above the threshold. Any remaining balance is written off after a set period.
• Credit Card or Personal Loans: Fixed monthly repayments, regardless of income, and missed payments can affect your credit score

While mortgage lenders will take student loans into account – as can affect your overall financial profile – the focus will typically remain on monthly repayment, rather than the total balance of the outstanding loan.

Ultimately, lenders want to see that you can comfortably manage a mortgage alongside your student loan and other outgoings.

Is a Large Student Loan Balance a Problem for a Mortgage?

While the size of your outstanding student loan can look alarming on paper, the balance itself is rarely considered by lenders directly. As we’ve highlighted before, what matters most of all is how much of your income goes towards repayments each month and whether you can manage a mortgage alongside them.

Although having a large student loan balance will rarely affect your chances of securing a mortgage, it’s important to understand that lenders will still want to assess your overall financial picture. Income stability, other traditional debts, and the total amount of your deposit will all influence how much you can borrow.

Want to know how lenders will calculate your borrowing power?

At Boon Brokers, our dedicated mortgage experts can help you calculate your borrowing power, with tailored advice on how to secure the most competitive mortgages. We provide a completely fee-free, whole-of-market mortgage service and give you a clear picture of the mortgage and home you’re likely to afford.

How Can You Improve Your Mortgage Chances If You Have a Student Loan in the UK?

In most cases, having a student loan will not significantly affect your chances of a mortgage approval. UK lenders focus on your monthly repayments, income stability, deposit size, and other debts rather than student loan repayments or outstanding balance.

As such, if you’re worried about how your student loans will affect your mortgage chances, it’s best to simply rephrase this question into: “How Can You Improve your mortgage chances?”

Instead of concentrating on a student loan, it’s much more effective to focus on the other factors that lenders will be assessing when deciding your borrowing power and overall risk as a borrower.

Can You Get a Mortgage in the UK if You Have a Student Loan?

Yes! Having a student loan will not usually prevent you from getting a mortgage in the UK. The most important factor lenders consider is your overall risk as a borrower. By managing your credit history, total income, deposit size, and other financial commitments effectively, you can usually secure a competitive mortgage without issue.

In short: Borrowers with student loans will still be able to apply for a range of different mortgage types, depending on their income, deposit, and other financial commitments.

Working with a trusted, whole-of-market mortgage broker like Boon Brokers can make the process simpler. Our dedicated experts will review your income, outgoings, and student loan repayments to help you find lenders and mortgage products that suit your needs.

How Can a Mortgage Broker Help You Find a Mortgage?

Working out your borrowing power, the best interest rates, and the mortgage that best suits your specific requirements can quickly feel like an overwhelming task. Thankfully, with the help of a trusted mortgage broker, you can receive simple jargon-free guidance every step of the way.

At Boon Brokers, we offer a completely fee-free, whole-of-market mortgage service. Our dedicated mortgage advisers take the time to understand your mortgage requirements and long-term financial goals. We can search across the whole market to match you with the lenders and products that best align with your needs.

Need personalised mortgage advice that you can trust?

Contact Boon Brokers today and let our experts guide you through every step of your mortgage journey, making the process simple and stress-free.