Student loans to pay for mortage?

glasgowm148

Let me preface this by saying I'm in Scotland so our student loans are (basically) interest free (aligned with inflation). And only repayable after you earn a certain amount, and even then it's 10% over £18k. So if I'm earning 30k after tax I'd be paying back £25/week. The loans are written off after 35yr and a few other circumstances.

Can anyone tell me any reason not to do this? And if I am going to do this...best place to put the money until I graduate? I get £6,750 per year in loans and £875 in a non-repayable bursary. I will be wiping out my current debts with my first payment but I'm working now so should be able to replace that.

Thanks!

silvercar

What are you going to live off, if you use your student loan to pay the mortgage?

glasgowm148

Moved back in with parents so don't have many outgoings (no rent, etc) Total monthly outgoings are £80. Will supplement social life with wages from freelancing. Managed to pay back £4k debt this year on a £4.7k bursary + £1k discretionary fund. I'll also be applying for the discretionary fund at Uni.

ACG

Have you defaulted with npower? (just going off your signature). If you have, get that paid as a priority to give you a better chance of high street rates.

Lenders in the main do not really like deposits coming from loans. I do think it is feasible to use it as a deposit.

glasgowm148

I have a payment plan with npower at £30/month I'm upholding. I'll be putting more than that towards that once I've paid off my debt which in accruing interest/fees (£3k left - my sig is £500 outdated).

You do or you don't? I plan to stick it in a credit union then go for a mortgage once I have a full time job out of Uni so how would they know where they money came from?

silvercar

I would check out the interest rates (now and in the future) on the student loans. Some of the loans have rates higher than a mortgage would be.

glasgowm148

silvercar wrote: »

I would check out the interest rates (now and in the future) on the student loans. Some of the loans have rates higher than a mortgage would be.

?? I explained this in my OP

Student loans are not commercial loans. The government subsidises the actual cost of interest on the loans, so they do not attract the same rates of interest as a loan from a bank or building society. Interest on the amount you owe will be linked to inflation - in line with the retail price index (RPI) - so the value of the amount you pay back will be about the same in real terms as the value of the amount you borrowed. This will apply as long as the loan lasts and will include any time when you are not studying or not repaying the loan, as well as when you are repaying the loan. Further information is available on the SLC website.

Mogley

I would only see a student loan as a loan to help you cover your costs through university. If you never plan on earning enough to pay-off the loan in full within 35 years then by all means get the maximum loan you can. But I would assume that you've gone to university to better yourself and get the best career and job earning potential as possible. In this case a student loan is still a loan (albeit relatively cheap) that will normally be paid off within 35 years.


As silvercar states, the inflation linked student loan interest can be higher than mainstram lending and mortgage rates so be careful with this.


If you are set on receiving your full student loan then make sure you stick it into high interest current accounts and regular savings accounts so that you can beat the inflation linked interest rate whilst in university.

Mogley

Take a look at point 7 in Martin's guide regarding interest rates. I am not sure whether this applies to Scotland though as I have not looked at the SLC website in a while.


http://www.moneysavingexpert.com/students/student-loans-tuition-fees-changes#multiThree-tabTwo

ACG

glasgowm148 wrote: »

I have a payment plan with npower at £30/month I'm upholding.

Get npower paid off as a priority if you want to increase your chance of getting a high street mortgage.

A bank is going to look at your credit report and see a payment plan and not be overly impressed with it. The sooner it is cleared, the sooner it stops having a negative effect on you.

I DO think it is possible. But with payment plans/arrears and a loan as a deposit your options are going to be reduced so you need to be putting yourself in the best light as there are a few negatives.

silvercar

glasgowm148 wrote: »

?? I explained this in my OP

Student loans are not commercial loans. The government subsidises the actual cost of interest on the loans, so they do not attract the same rates of interest as a loan from a bank or building society. Interest on the amount you owe will be linked to inflation - in line with the retail price index (RPI) - so the value of the amount you pay back will be about the same in real terms as the value of the amount you borrowed. This will apply as long as the loan lasts and will include any time when you are not studying or not repaying the loan, as well as when you are repaying the loan. Further information is available on the SLC website.

Mogley wrote: »

Take a look at point 7 in Martin's guide regarding interest rates. I am not sure whether this applies to Scotland though as I have not looked at the SLC website in a while.


http://www.moneysavingexpert.com/students/student-loans-tuition-fees-changes#multiThree-tabTwo

Naive to assume the rate will always be low and that your earnings won't lead to higher rates of interest.

From the link above;

"After studying, earning £21,000 – £41,000:

The interest rate will gradually rise from RPI to RPI plus 3% the more you earn (the interest rises 0.00015% for every extra pound you earn or, put another way, if you earn £1,000 more, you accrue 0.15% extra interest). These thresholds are frozen until 2021, but could rise with average earnings after.

After studying, earning over £41,000:

Accrues RPI inflation plus 3%."

If times becaome tough for you, in expenditure terms, you could regret having to pay 9% of income above X on a debt that is growing as against 2-4% interest on a loan.