Would this be considered "debt"? Will this affect mortgage application?

neo2020

Hi all,

My wife and I are in the process of applying for a 90% LTV mortgage with Santander. We are both self-employed and have a joint income of £42k per year (32 me/10 her).

We have not yet made the full application but we received the DIP yesterday and our offer for a property has been accepted. The mortgage advisor (who is paid on completion) is very confident the mortgage application should be a straight forward affair.

Things were going swimmingly until as I was printing off additional bank account statements for proof of address I noticed a £30 direct debit on one of my accounts and remembered that:

In 2006, I was in my final year of university. The tuition fees were approximately £10,000 per year (foreign student). Having paid for the first 2 years up front, in my last year my parents, who had been paying my fees until that moment, went bankrupt suddenly and I was left with a 10k bill and very little income from a part time job I had.

Realising that there was no way I could survive and study and pay my tuition fees, I informed the university in the first term of that year that I would not be able to finish my studies. They insisted that the full fee was due for the year and would have to be paid. I felt it was unfair to charge me for a full year when I had given them notice of withdrawal in the first term but I didn't exactly have much choice in the matter. I had a meeting with their finance team and reluctantly agreed that I would pay £30 per month for as long as it takes to pay the outstanding tuition fees. I agreed to this just to stop them from going after me for the whole amount lump sum. I left university, never graduated and formed a self-employed business which I have to this day.

Over the last 10 years, I have had this £30 DD on my account and forgotten all about it. To be honest, I was so worried that as my financial situation improved, the University would try to force me to pay off the whole debt in lump sum or try to increase the payment to unmanageable levels that I forced it so far to the back of my mind that I'd forgotten about it completely.

Now, taking a slightly more detached view of things I realise that to an outsider rather than a private arrangement to pay tuition fees in instalments this might be construed as debt. I don't know exactly but I am guessing that my total payments over the years add up to around £3.5-4k, i.e. a little over a third of the total fees due for that year. I have never missed a payment, the university has never been in contact with me about it and it doesn't show on any of my credit records.

The only document I have in relation to this (from 2006) does not describe it as a debt, it says:

"Dear Student,

You have elected to pay Tuition Fees for 2006/2007 by Direct Debit. The following amounts will be collected on the listed dates:"

It then lists a year's worth of £30 monthly DDs and the total fees due.

So my questions are:

1) Should I have declared this to my MA at the time of application?

I answered every question she asked me honestly, so when she said "Do you have any student loans, other credit, secured or unsecured loans?" I proudly said "no" lol simply because I'd forgotten all about it. Even if I had remembered it, I probably would have said "no" since it's not really any of those things?

Should I declare it to her now?

2) Will the bank ask for clarification of what the direct debit is about when we make a full application? The bank statement clearly states the name of the university and my marticulation number.

3) If the bank becomes aware of this situation, either through me telling them or them asking, will they consider this a debt, i.e. equivalent to having ~6k on a credit card, or will they just look at it as a monthly payment, i.e. gym membership?

4) What are my chances of now challenging the total amount based on the fact that I only studied for 1 term? I appreciate that I later agreed to pay the full amount but I was a naive, scared little kid back then and they pretty much bounced me into the whole thing.

5) If I can't successfully reduce the amount as above, what are the chances I can get them to settle for a % of the remaining tuition fees? I am guessing that there is about 6k left, is it realistic to expect to offer them a third of that? Surely it's better for them to get £2k now than get 20 more years' worth of drip drip payments? Realistically, for us to be able to go ahead with the purchase, I couldn't throw more than £2k at it right now. Most of our deposit is gifts from family after we've managed to scrape together a small amount ourselves (my wife has a disability and we live in a very expensive part of the country where £40k really doesn't take you very far).

Posting this at 2AM as I'm worried sick this could affect our application... can't believe I forgot all about it!!! Thank you in advance for your advice.

anotheruser

They are likely to pick it up and question it.

Contact your mortgage advisor and tell them about it - they will only contact you later on.

Contact the University and see what they say about paying off a chunk as final settlement.

davidmcn

And (1) yes, it's a debt (not sure what else you think it could be!), (2) no, you probably can't (successfully) challenge your liability after a decade, and in any event you probably were liable to pay the full year's fees, and (3) you can ask, but I don't see why they would accept part payment in settlement unless you were genuinely having trouble meeting your financial liabilities in general.

Neutrinno

Of course it is debt, otherwise you wouldn't be paying them back any money. It will likely effect your affordability with the lender. As it's only a small monthly repayment it may not derail the application, but I would inform your adviser as soon as you can.

neo2020

ImRob wrote: »

Of course it is debt, otherwise you wouldn't be paying them back any money. It will likely effect your affordability with the lender. As it's only a small monthly repayment it may not derail the application, but I would inform your adviser as soon as you can.

Thanks, I will do as soon as she gets in the office (10AM).

The reason I was not sure it's debt in the usual sense is that:

1) It does not accrue interest
2) It's a fixed monthly payment at a very low level (0.008% of our annual income)
3) It's not shown on any credit records

When you say "affect affordability", do you mean they will deduct £360 a year from my income or do you mean they will go "this guy has £6k of debt so let's deduct that from his deposit"?

Neutrinno

neo2020 wrote: »

When you say "affect affordability", do you mean they will deduct £360 a year from my income or do you mean they will go "this guy has £6k of debt so let's deduct that from his deposit"?

Neither of the above ways. Each lender is different on how they will treat it with their own affordability calculations, but like I said I can't see it being a deal breaker if your adviser is confident this is a 'straight forward affair'.

neo2020

ImRob wrote: »

Neither of the above ways. Each lender is different on how they will treat it with their own affordability calculations, but like I said I can't see it being a deal breaker if your adviser is confident this is a 'straight forward affair'.

Just spoke to her, she said it's not an issue at all as far as she's concerned. She said if it had been a problem, it would have been raised at the DIP stage and even if the bank queries it later on, it's a tiny DD that's been in place for years. She said it was good that I told her since if they do query it now she'll be able to deal with it without even getting me involved.

I hope she is right but it has made me aware I need to sort this situation out instead of sticking my head in the sand!!!

jo3ler

I very much doubt they can enforce the debt after so long with no formal agreement. I would defo stop paying after your mortgage gets sorted, or offer them a final settlement as otherwise suggested.

We are also awaiting news from santander through our mortgage broker. So in a similar boat as I'm self employed, good luck!

davidmcn

jo3ler wrote: »

I very much doubt they can enforce the debt after so long with no formal agreement.

Why would they need a formal agreement? The OP incurred the liability when they signed up for the course and has acknowledged the debt by making repayments - it's not as if the university has surprisingly demanded the sum after a decade of silence.

muhandis

If I was in your place, and this was the only agreement - to collect £30/month for a year to pay Tuition Fees for 2006/2007 - I would cancel the DD (once the mortgage agreement is in place) and see if the university gets in contact to query this and then take it from there.

Having worked previously in the accounts department of a London based college catering primarily to international students, the arrangement you describe above seems oddly informal for a "debt" of £10,000 and unlike anything I've seen while working there.

Firstly we would never enter into a long term debt repayment plan with an international student as their continued presence in the UK could not be assumed.

Secondly, we would not enter into a long term debt repayment plan with a student without -
- checking your credit report
- documenting a proper repayment agreement (for the whole amount) with admin fees, late fees or interest added on to the principal. (interest free debt of £10,000 for a period spanning 27 years is unfathomable)
- sending an annual statement detailing payments made, debt outstanding, etc
- periodic offers to discuss a 'Full and Final' payment to repay the debt

Our auditors would slap us around the face (all universities have pretty rigorous financial audits and nosy internal auditors) if we didn't do this.

I'd wager that the "debt" (if it ever existed) has been written off a long while ago in their accounts while your £30 just goes into a suspense account every month.

Given than you have been here for more than 10 years, I assume that you have acquired citizenship and are no longer on a points based visa. If that isn't the case then please ignore what I said.

Out of interest, was this a private university/college?

neo2020 wrote: »

The only document I have in relation to this (from 2006) does not describe it as a debt, it says:

"Dear Student,

You have elected to pay Tuition Fees for 2006/2007 by Direct Debit. The following amounts will be collected on the listed dates:"

It then lists a year's worth of £30 monthly DDs and the total fees due.

jo3ler

Why would they need a formal agreement to take £30 a month for 10 years through direct debit... Jeez..