Mortgage and student loan

beckstrous

Hi there,

I wondered if people could offer any advice. I have a small student loan to pay off - £1085.89. The monthly repayments are £79 and the interest is 3.2%. My boyfriend and I are looking to buy a house this year and I don't think we will have a problem getting a mortgage (I earn £28k and he earns a couple of grand more - he has no debts and I have no debts apart from this), but I know that lenders take the loan into account when deciding how much to lend you.

At the moment we rent a flat for £775pcm. I can comfortably save as well as live and by the end of the financial year I want to make sure my ISA is topped up to the max - I have £400 left to put in and should manage this. The question is, after that, should I put my extra cash into the loan or should I instead put it into my other savings account, where the interest is 4.87%?

I am inclined to do the latter because that way I can save towards the house (we hope to build up a bit more for a deposit) but if it is financially more prudent to pay off the loan first I would of course do that. The reason I think it is better to save is because the interest rate is higher than that for the loan, but I don't know if the way the lenders take the loan into account when calculating what to lend us would balance this out.

On the other hand I also am aware that if I didn't have the loan repayments we would obviously be able to afford a bit of a bigger mortgage anyway (we are only going to the max I can comfortably afford monthly, though my boyfriend could afford a bit more than me).

So any advice would be much appreciated.

Thanks,

Beck

AndrewSmith

Hi,

I would be inclined to let the student loan run it's course and finish in ust over 13 month's time.

You will find that, on most occasions a lender will not include any loan payments to a loan with less than a year to run, so after one more payment you may find that this loan has no detrimental affect on your borrowing ability.

Also, it is better to make money move forward at 4.87% (subject to the account conditions, access etc) when the loan is only costing you 3.2%.

I do not think your student loan will impace at all on your possible borrowing ability.

Hope this helps

Andy

beckstrous

Thanks Andy. That's very helpful advice - I am glad to hear that as it is quite a small amount, at low interest, my preference would be to try to put money in the savings account after I have topped up the ISA.

village_life

Hi Beckstrous - I have also gone through this recently - just signing up for a mortgage that is - I have about £2000 left on my student loan, and following a recent change of job am now paying it off at around £170 per month...

When getting agreements in principle I didnt declare this item and so was able to get more than enough money than I needed- then following a bout of conscience - I declarted it to my mortgage adviser who said it wasnt a problem... In the end, we have taken a mortgage @ 4.5 times joint salary (in the interim), will fall to 3.75 times later in year when fiance/wife gets her new job (Already agreed)

You may know better than I, but I am not sure if the mortgage lendors recognise that student loans exist!? - I know they do credit searches, but I know that my student loan doesnt appear on my credit report - therefore how will they find out about it!???

My over-riding thought was that since the student loan is deducted from salary directly, you dont "notice it" - i.e. not like paying back a true loan where you get a direct debit taken from your bank on the 15th of the month - so in deciding what we could afford, we automatically discounted the loan as we worked on affordability of repayments when reviewing our gross salaries.....

this is a bit of a ramble, but anyway, my advice is to leave the loan to run its course, and pay your money into the best savings account you can....

beckstrous

Thanks. I'm glad to hear that the loan won't be a problem :-)