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Does student loan affect mortgage on a residential property?
If you have a student loan showing on your payslips, it can sometimes affect the amount that a lender will be able to lend to you.
Student loans are paid for out of your gross income, collected by the employer showing as a deduction on your payslip. This is paid as a percentage of your earnings.
As your student loan is a debt and payments are mandatory, lenders will factor this into your affordability assessment.
Depending on how much you earn and the amount of the monthly payment, this could mean that the lender decreases your maximum mortgage capacity. Different lenders have different methods of affordability calculations, resulting in contrasting amounts.
It would be the job of a mortgage adviser to work out what your income and liabilities are to then research the mortgage market to see your maximum borrowing amount. Student Loan Repayment Calculator is a useful calculator to calculate your payments.
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Does student loan affect the mortgage on a buy to let property?
In most cases, student loan payments would not affect a buy to let mortgage.
Buy to let mortgages are mainly underwritten on the amount that the property will generate in rent versus the loan amount.
This is referred to as the lender’s stress test.
Having said that, buy to let lenders do still need to know about your full income and debts.
If a lender felt that you were stretched financially due to a large amount of debt, this may result in them being uncomfortable and not offering a mortgage. As your student loan is reducing your net pay, this could make a lender feel that your financial obligations are unaffordable.
Some buy to let lenders work in the same way as residential lenders and carry out a full affordability assessment on the loan. In cases like this, your student loan payment could be a negative factor. In most cases, buy to let lenders should be comfortable with your student loan, as long as the rest of the application meets their income and debt to income ratio.
Some buy to let lenders have minimum income criteria which need to be met when taking a mortgage with them. A common amount is £25,000.
There are, however, lenders that do not have minimum income criteria at all, as long as they are comfortable that the situation makes sense and the applicant is not under financial pressure.
It will be for a mortgage adviser to look at your full situation to assess whether your student loan will affect the mortgage and which lenders may be available to you.
If I tell the lender I am paying my student loan back, will they ignore it?
Some lenders can disregard your student loan payment or loan payments in general if you plan to pay the debt back on completion. This is not the case for all lenders, however, as some only ignore debts when they have been fully repaid and this has been evidenced to the lender.
For the lenders that are willing to disregard debt on the basis that is repaid on completion, they will likely need to sense check that you have the means to repay the obligation. For example, this may mean the lender requesting evidence of savings, to verify you could clear the student loan balance.
Your mortgage adviser would be able to confirm to you which lenders may be suitable if you intend to clear your student loan balance once your mortgage goes live.
Will I be able to borrow more on a mortgage if I pay my student loan back?
It is possible that you could borrow more money if you no longer have a student loan.
This is because clearing your student loan balance will mean that you receive more net income per month due to not having to pay this commitment. This, however, is not always the case as it can depend on many other things.
Lender’s affordability calculators contain their algorithms which take into account other factors, including your income, dependants, deposit amount, loan commitments and the amount that you need to borrow. Due to this, it may not be only a student loan payment that is making a difference to a lender’s calculation.
Talk to your mortgage adviser to find out whether repaying a student loan would make any difference to affordability, or not.
Would a student loan affect a bridging loan?
It would be very unlikely for a student loan to affect a bridging loan application.
This is because bridging loans are generally arranged on the basis that the interest is retained over the period and repaid at the end.
This means that on bridging loans underwritten this way, an applicant’s income and outgoings are less of a factor.
It is, however, possible to get a bridging loan on an interest only basis where monthly payments are required. In this scenario, an applicant’s income and expenditure (including debt obligations) will be very important. It may then be the case that the student loan repayments impacts whether you can get the borrowing that you need.
A skilled bridging loan adviser would be able to guide you in this department and tell you whether your student loan would affect your borrowing.
Always take professional advice if you are thinking about bridging finance.
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Would refinancing a student loan help me to get a mortgage?
If you were to refinance a student loan by taking out an unsecured loan over a longer term, this may increase your affordability if loan repayments are significantly lower.
This would not be something to do, however, without taking professional advice.
Your student loan is paid from your gross pay, whereas an unsecured loan would be paid from your net pay. This effectively increases your payment, but it is from post-tax income. Doing this also means that there is an unsecured loan showing on your credit report, which may also affect your credit score.
As a result, it would not be prudent to assume that this will benefit you and it would be best to speak to a financial adviser if you were considering this.
Having a student loan payment showing on your payslips can affect the amount that you can borrow on your mortgage, due to this monthly commitment.
Lenders’ calculations are complicated so they take into consideration any other outgoings when calculating your affordability.
As a result, the payment will not always affect how much you can borrow.
Always talk to a qualified and experienced mortgage adviser to find out what you can borrow, what the terms are and how your loan commitments would affect your application.
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