Student loan debt IS now considered when applying for a mortgage, throwing graduates' home ownership plans into jeopardy

• MMR guidelines mean lenders now factor in student debt
• University costs have ballooned in recent years

By Lee Boyce

Graduates with a mountain of student debt could find their future plans of buying a home thwarted after the Financial Conduct Authority confirmed the debts are now considered by mortgage lenders after the introduction of the Mortgage Market Review in April.

In the current academic year, university fees can be up to £9,000 per annum, not counting accommodation and cost of living, meaning debts of tens of thousands of pounds for students.

But despite recent advice suggesting otherwise, graduates will now have these student loan debts included in the affordability calculation for a mortgage.

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Big blow: Graduates could struggle in the future for mortgage lending as debts are now factored in

Alexander Burgess, British Money director and a former MBA student, received confirmation from the FCA that student debt is now considered - while a spokesman also confirmed it to This is Money.

The MMR guidelines will force all mortgage lenders to consider student loans as a committed expenditure, greatly reducing the amount they are likely to offer. 

 

Alex Burgess said: 'There appears to be a common misconception among students that anyone who has taken out student finance will have their loan discounted, but this simply isn’t the case.

‘Universities infer it’s not considered to be a debt, credit rating firms are swerving the subject on whether they’ll access student loans records and financial sites such as Money Saving Expert suggest “student loans do not go on credit files”.’

Halifax, the biggest mortgage lender in Britain, confirmed student debts are now looked at. A spokesman said: ‘As part of the MMR changes we do now take into consideration student loans for new mortgage applications.’

The new MMR rules mean longer application times for those looking to borrow with lenders stress-testing to make sure they can afford payments in the future.

But as well as this, some have reported being asked a range of questions about their finances, including whether or not they eat steak, play golf or if they are planning to start a family. However, the student loan debt aspect has only just come to light.

 

A spokesman for the Building Societies Association said: ‘Under the new MMR rules, student loans are certainly considered to be committed expenditure and will be included as part of the affordability assessment.  

‘We would urge all borrowers with student loans to be responsible, realistic and reduce their debt elsewhere as much as possible if they are thinking of applying for a mortgage.’

Paul Smee, director general of the Council for Mortgage Lenders said: ‘In evaluating a mortgage application, lenders will build up a picture of the various calls on an applicant’s income and then determine what level of borrowing he or she can safely sustain.

‘It is in no-one’s interest for over-borrowing to be allowed. But this does not mean that there are red line questions on which the success of an application will turn. Lenders will want to consider an applicant in the round.’

A spokesman from London & Country Mortgages added: ‘Any kind of loan payment will be factored into an affordability calculation as a commitment and it will have a direct bearing on how much the applicant can borrow. 

‘Any regular cost, including a student loan, will therefore potentially reduce the level of mortgage borrowing.’

The news will be a huge blow for those who have left university in the last decade, who face higher university fees and many of whom would have been in employment for years and saving up for a deposit, to only now find their future plans could be jeopardy.

Alex added: ‘This is penalising a whole generation who are already saddled with unrealistic proportions of debt just because they have career aspirations that can only be fulfilled through higher education. 

‘Graduates have loans for an education that a few years ago was free, but are now less likely to secure a mortgage. How is that fair when they do not fully understand the implications of taking on such debts?’