Will a student loan impact 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 to the same extent as other debts. 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 affect 'creditworthiness'

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One of the biggest factors determining whether or not you'll be accepted for a mortgage is how lenders perceive your 'creditworthiness', something that's influenced by what's recorded on your credit file. A patchy or poor credit report – such as one that contains a history of missed repayments – can easily scupper any mortgage application...

So before any mortgage application, it's vital you...

However, unlike other forms of debt – such as other types of loan, credit card debt, being in your overdraft, car finance payments, and so on – student loans DON'T normally appear on your credit file.

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 it's for £1,000 or £100,000.

There are some rare possible exceptions, such as if you're self-employed and have had a county court judgment (CCJ) issued against you for not repaying your student loan. In this case, your student loan may be recorded on your credit file (see more on Reasons why a student loan might appear on your credit file).

But student loans CAN affect 'affordability'

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As well as checking your creditworthiness, 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, 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 reach month. 

So, the more your student loan lowers your take-home pay, the less a lender might be willing to let you borrow, as you'll have less disposable income if interest rates were to go up.

Importantly, though, the hypothetical example above hinges on the fact that all three graduates earn the same salary...

If you're weighing up whether to go to uni and are worried about your student loan potentially impacting your ability to get a mortgage in future, bear in mind that studying at university often results in a higher salary, so even with your student loan repayments, you might well be in a better position mortgage-wise than you would've been had you not gone to university...

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...

  • Bigger choice of mortgage deals you'll have. This particularly applies where you've got at least a 10% deposit.

  • 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, especially during this cost-of-living crisis, 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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