Mortgage vs Student Loan

Dave_Ham

Please be careful; there is a distinction between a student loan and a finance for a student course.

A student loan is what most of the responses deal with, in terms of your earnings etc. although this open university may be student finance.

I am not familiar with this finance, although suggest you check what are the parameters.

If you start paying £x a month when you agree to sign up on the course then it is the latter and will be deducted from your income for mortgage purposes..

kloana

You'd have to be a pretty high earner for a student loan (a true student loan, i.e. from the Student Loans Company) to impact that much on a mortgage/credit affordability assessment. In which case, if you're earning high, you probably wouldn't worry anyway.

Currently, a graduate earning £25k would have approximately £70 per month deducted from source out of their gross salary. Which sounds a lot, in isolation, but surely there's many a mortgage approved when the borrower is paying much more than this, just servicing conventional credit debt.

Plus, deductions don't go on forever (obviously), and there's the added safety net of the fact that deductions cease if the graduate's salary falls pretty drastically (to below £15,795, set to increase to £21,000 for new starters).

2019

When I went for my mortgage last year (Solo) It was repeatedly mentioned that the student loan 'doesn't affect' mortgages. However when I went through the process, it came down to what the above poster said about 'net pay'. They work out your affordability after all bills/living costs are taken out.

For example you come home with £1,100 and £1,000 goes on bills (including mortgage payment) and £80 Student loan then they know you only have £20 left for say food and other... They say no.

They would reduce the amount they lend you or extend the term up to 40/45years ( & Cost you more interest) for smaller monthly repayments so... bills would come to say £900, £80 Student Loan £120 left over.


So yes from my experience Student loans do affect affordability on the Mortgage. I was granted one but never did 'draw down' as in the end I didnt need it.

Just include your student loan like any other bill as if your over the threshold then the money is gone out your pay packet and not 'yours' to spend on mortgage repayments or anything else.

2019

RenovationMan

Do you have to pay the whole £15k up front? I thought the OU degrees were modular and priced per module?

If you have your own company, and it's a limited one, you could pay for the course through the company (as staff development, which is good against IR35) and save tax.

justtryingtogetby

To clarify a few points:

The student loan I am referring to is one from the student loan company, not a general loan I am taking out to pay for the course.

I don't have to the pay the full £15000 up front as I am doing it part time and on modules, but the £15000 will come from the student loans company.

When you say you can pay through the company, would that mean I get the loan as an individual, pay through the company, and filter the loan back into the company?

To clarify a few more points, both my partner and I are self employed and bring in a joint income of about £40k. We both have books for 3 years. Just don't want this loan to hinder our application too much.

As it is a loan, would it only hinder our application if I was applying when repayments started? So at the moment I would be fine?

RenovationMan

justtryingtogetby wrote: »

When you say you can pay through the company, would that mean I get the loan as an individual, pay through the company, and filter the loan back into the company?

No, the company pays for the course directly and some of the expense can be offset against your corporation tax. Provided you are running a limited company. If funds are tight, you could get a business loan, but that might be more difficult in the current climate.

It's far more tax efficient to use your company funds than your personal funds as much as you possibly can. Naturally, you have to be able to justify the expense but as long as your course has an element of 'staff development' or would help increase skills/knowledge/experience in the business then this should be easy to do.

kloana

2019 wrote: »

For example you come home with £1,100 and £1,000 goes on bills (including mortgage payment) and £80 Student loan then they know you only have £20 left for say food and other... They say no.

They would reduce the amount they lend you or extend the term up to 40/45years ( & Cost you more interest) for smaller monthly repayments so... bills would come to say £900, £80 Student Loan £120 left over.

And you're right, in the general gist of things, except that if you brought home £1,100pcm, net, you'd only be earning £15,500 per annum, gross. Currently, student loan deductions on that amount of salary are nil.

You'd need to earn £26,500 p.a. before the student loans guys took £80pcm from you, still leaving you with over £1,600pcm, net. Hence my above post re, the bigger your salary, the bigger your SL deductions, but obviously the smaller your overall financial worries (in most cases, anyway, where the borrower is living 'sensibly').