Getting a student loan will stop you getting a mortgage!!

yertiz_2

agarnett wrote: »

I hate the guerrilla style of posting when questions posed to those with restricted agendas get awkward for them to field - so they shoot a few last wild shots, then run and hide. Or is it just a kind of "you're on my pitch and I'm taking my ball elsewhere until you've gone"?

I wonder how much mortgage and affordability experience young Lokolo really has? At his or her age, it mattered to me what my parents said about mortgages and what my in laws said. Both sets represented the first in their families to own property. One set was scared to death by their mortgage which was started in the 70s when I was a teenager. By the 90s they had paid it off, all £3,300 of it, and they still live in the same house, mortgage free.

The other set were mortgage free before age 50, but one had to die to achieve that status but even managed a house-move in the last months of terminal illness and secured more guaranteed life assurance in the process (yes the industry did such things!).

The in-laws had started with a local authority mortgage in the 60s. Their initial interest rate was single figures - about 7% I think. By the time I got my first mortgage in the 80s, RPI had just peaked at 21.9%. I got annual pay rises which included "cost of living increases" in double figure percentages and then merit and promotion increases on top. We still had fairly strong trades unions who collectively bargained for large groups of workers so that it was possible to broadly keep pace with inflation. That's a protection of the past.

So before we got our first mortgage, 7% was the lowest unsubsidised mortgage rate we had ever heard of in 20 years. It was just a dinosaur rate from a previous age (or so we thought). Mortgage rates were all over the place. I remember one fixed deal at 11.3% for two or three years. I did ok with it! Then I lost out on another fixed deal another day. We never ever expected to see single figure mortgage rates ever. No-one did. My father-in-law still counselled that we should borrow as much as a mortgage lender was willing to lend and not worry about how we would pay it back. That would take care of itself. In a way it did, because in his day, the lender didn't lend more than 3x the male salary, and the lender insisted on insurances and assignment of any collateral such as endowment policies or even pension policies so that there was always something to pay the loan off at the end.

By the 1980s we were getting multiples that took account of female salaries - well maybe 3x male plus 1.5x female. But 100% mortgages were readily available. Then eventually someone said the multiples were a bit sexist so we got 4.5x joint salary type multiples, then 5x and 6x. We also got lower and lower cost endowments, and low start endowments which became like paper bags of hot air. With profits got nudged aside by "unit-linked" endowment policies. Then !!!!!! ... endowments rapidly, despite two decades of excellent and easily understandable use, became some kind of apparently scuttled pariah product, and the great hulks of with profits funds were in fact not sunk, but deliberately beached, but not in Bangladesh to be dismantled by opportunistic scavengers, but in London by outfits with names like Resolution, now rather quaintly branded "Friends", which is actually the last thing they are to most punters.

Also however, in the mid 80s, it suddenly dawned on those bright sparks in the city that debt was good. The bigger the better. Debt was risk. Risk could be traded. Risk could also be dumped on people not just corporates. How to control more debt? How to get a big slice of more personal debt? Car loans perhaps? Nah that's not enough. Wait! I know! Mortgages ! We already know about them. Let's buy up estate agents and their in-house mortgage brokerages! Then we can dish out and control the biggest personal debts of all! Yes Mortgages! Why didn't we think of it before? And so they did. Insurance companies paid huge premiums and bought out and created enormous chains of national estate agents. Even supermarkets had a sniff at it if I remember correctly!

In September 1992, I was on holiday in Canada when Chancellor Norman Lamont stepped into the limelight, brushed that long lock of hair from his forehead, and told the world he'd taken us out of the ERM. What was the ERM? Who really cares? But it caused mayhem in the markets. I had bought dollars at two for a pound before my holiday, but the pound plunged after he said his piece. A bit peeved, but not overly perturbed, I plunged too - before heading back to Blighty, I went scuba-diving in Bermuda despite my dollars costing a bit more than expected. You see I was doing better than average but of course many others were doing diabolically and falling into doubly depressing negative equity traps.

Meanwhile self-certified mortgages somehow became the rage, and interest only mortgages - these were tools that allowed many people to lie their way out of trouble - the lenders didn't seem to want to know about assigned collateral and insurances any more - it was kind of okayed by the government - a bit like PPI reclaiming. A kind of quantitative easing for the people ... but actually it created what we might now call sub-prime - never imagining that we or anyone we know might be it.

Then by the noughties, nutters like Northern Rock were offering 125% LTV. That's because the lenders had started doing serious book-cooking too - because they could. The global insurance companies and their investment banker friends showed them how. Never mind estate agents any more - think bigger picture. Start packaging all those existing mortgages into derivative products and issuing insurance policies on their continued performance.

My first five mortgages (yes I know a bit about them, Lokolo) were with profits endowment mortgages. I had bought a house 4 days before Christmas in 1987 having found, exchanged and completed inside 3 weeks. Yes Christmas Day is just a day in the calendar, Lokolo, except I found time to both travel and cook a decent Christmas 2014 lunch for rellies despite frankly, your rather unnecessary attempt at ridicule just because you detected I had chosen to find a few minutes to post on MSE that day too).

You may have noted above that I said mine were with profits endowment mortgages. That's because they were the norm. Those are of course now four very very dirty words indeed, and most surviving industry people dismiss that scandal as nothing to do with them. But the scandal was a big deal and continues to be so for hundreds of thousands of people who were young and impressionable once, just like you! Some of those people are the same ones who struggled in the negative equity traps and house price crash in the late 80s early 90s.

Some of them lost again with the price crashes after 2007. Triple whammies. But never mind, many bailed themselves out as usual with massive credit card limits that had miraculously appeared in the late 90s and noughties. Remember those old American movies where they open their concertina wallets and out comes a huge ribbon of credit cards? Yep UK followed suit. But guess what? Student Loan Debt in the US is now significantly greater than Credit Card Debt.

And I know from personal experience that I can borrow more on my credit cards than I can on my mortgage. If I was a Repayment Plan 2 student I would also know that I could borrow more on my Student Loan before I graduated than on my credit cards or my mortgage! What? How can that be ?

It's a crazy upside-down world of debt, Lokolo. And when you say you've been affordability checked for a mortgage - like you have some meaningful hard-earned or maybe easily earned (depending on what you are trying to say) seal of approval - all it really means is that you have been suckered into someone else's game where you probably still do not even begin to appreciate the extent of your true lack of control of your own destiny, or at the very least, your luck that your Student Loan debt is rather insignificant compared to the Repayment Plan 2 debts increasing at RPI + 3% as we speak.

When Student Loan Debt in the UK exceeds Credit Card Debt - as it will, quite quickly now at those rates of interest, which type of debt do you think will be securitised/bought and sold the most? Will it be mortgage debt? Will it be credit card debt? Will it be student debt? Will it be mortgage debt taken out by students who also have massive student debts - would the latter be sub-prime debt or super-prime do you think ? Are you buying or selling?

Which would you trade, and what kind of discounts would you expect if you were an Erudio? And how would you turn a quick profit?


Yet you still wish to base your recommendation of affordability on your own particular experience of "now"?

I really urge that you might need to experience a few more decades before you get the trick of it sufficiently to preach to youngsters that the Student Loan millstones round their necks will never be a problem.

I have more than one credit card limit higher than your own example of a student loan - a loan which in your case represents better days for students when student loans were nowhere near as onerous as now. Does your rather modest older style student debt really qualify you to make sweeping statements about the current styles of loans affecting the majority of undergraduates who started in 2013, 2014 and who right now are planning to start in 2015? Have a heart, Lokolo.

You actually have no more clue than anyone else how much a typical SLC Repayment Plan 2 loan is going to affect their chances of getting a mortgage in the future, because you have no clue what interest rates and salaries will be doing in 12 months let alone 2 3 4 or 5 years down the line, nor indeed how fast the government of the day will actually need to privatise the loan books. Nor do you have any idea what will become of the mortgage market, the regulatory pressures applied to it, or the housing market. Why are you even countenancing investment in the UK in the housing market? Because it IS a good idea? Or because in 10 years you might be able to say "well everybody does it/it seemed to be a good idea at the time" - like Student Loans perhaps??

The UK economy is surely teetering backwards and forwards over massive precipices of unknown depth. You might take heart in knowing that if we go over, we'll take others with us, but really, why are you still effectively countenancing that Student Loan Debt is like safe sex? You surely know that there are always winners and losers whatever the markets do. Do you really have enough knowledge to argue that the debtors will continue to be the winners? Prisons used to be full of debtors. Bankrupts are still treated as third class citizens. But some debt is good debt? Could be. But you better be bloody nimble on your feet with it.


Students should never have been made to borrow money to continue their education in laudable ways. To have done so was a cheap time and distance trick learned by gullible politicians from financial centres like London and New York. Learned from such practices as the miraculous bailing out Lloyd's of London using Equitas and outsourced "run-off" structures, when Lloyd's was actually bankrupt. Learned to from phoenix-like re-incarnations of too big to fail zombie airlines via Chapter 11 type administration in the States. And most recently learned from the absolutely blatant printing of vast quantities of fiat money paper right around the world. I.e. our Student Loan scheme is now something based on the same "never never" as feared by our wisest grandparents. The time and distance aspects have been achieved most assuredly by real risk transfer (away from current taxpayers and government) played on and placed upon our nation's most impressionable young adults, those who have a thirst for learning and who are constantly advised there is only one way to get it.

These youngsters are those whom we should actually be nurturing like budding supermen and women in superb protective capsules with excellent life support systems, not treating them as cannon fodder for the likes of Erudio and God knows who else in a few years.

Thank you and well said agarnett, this topic should be debated more on this forum; students and their parents should know what the 'real' situation is.