Will a student loan affect my mortgage application?

Yes, a student loan is taken into account by lenders and could affect your mortgage application. At the same time, paying this loan off early is rarely a good idea.

If you want to apply for a mortgage, having a student loan could affect your chances of being approved. However it’s definitely not the end of the world.

This guide takes you through what some of the UK’s major mortgage providers have to say about it and the obstacles you might encounter – and we also give you some useful tips and tricks to increase your chances.

How are student loans different to other debt?

Unlike traditional loans, modern student loans are deducted automatically from your wages.

You only repay this loan once your annual income surpasses a specific figure and the debt is written off after a certain amount of years. The “interest” charged on these loans is tiny compared to other loans. For most modern loans, you’ll only be charged a rate based on UK inflation.

The exact terms involved with your student loan will depend on what UK country you live in and when the loan was taken out.

Modern student loans have no impact on your credit score and will therefore have no influence on applications for other types of credit. The only exception to this rule concerns students who started university before 1998 and defaulted on their loan. These individuals don’t have student loan payments automatically deducted, and their credit score could be affected if they miss a payment.

The rate at which student loan payments are deducted from your salary is typically smaller than for other loans.

Why do mortgage lenders ask about student loans?

Rules made under the Mortgage Market Review (MMR) give mortgage lenders the power to ask more detailed questions about an applicant’s financial situation.

This allows them a clearer idea of how much disposable income an applicant has to spend on mortgage repayments.

If you have student loan debt, this decreases your disposable income and potentially harms your chances of being approved for a mortgage.

However, this will only be a considered among a whole host of financial details.

Ultimately, if you can comfortably afford to pay off the mortgage you’re applying for, you shouldn’t worry about your student loan scaring off lenders.

Should I pay off my student loan?

Paying off your student loan in full will allow you more disposable income, making you a more attractive applicant in the eyes of lenders.

However, student loan debt is cheaper than most other debt, so you’re likely to be better off clearing all other loans first. Even then, paying it off early is rarely a good idea.

This money is typically better being put towards your mortgage deposit. A larger deposit will provide you with less mortgage debt and access to a better mortgage rate, saving you more money in the long run.

It’s also possible that you could be needlessly paying back a loan that would otherwise have been written off.

Tips to increase your chances of mortgage approval

  • Pay off your most expensive debts first. Mortgage lenders will assess your disposable income when deciding whether you can afford to make mortgage repayments. If all your debts are cleared, you’ll have more disposable income, making you a more attractive applicant in the eyes of lenders. It’s best to clear your most expensive debt first, so your student loan is likely to be the last you would consider clearing. Clearing your debts will also reduce your “debt to income ratio”, which is also considered by lenders when assessing your creditworthiness.
  • Make all debt repayments on time. If you’re unable to clear all debts in full, make sure you make all monthly repayments on time. This will boost your credit score and your chances of being approved for a mortgage. Late repayments or arrears will significantly reduce your odds of approval.
  • Save a large deposit. It’s easier to be approved for a mortgage with a smaller loan-to-value, which is why you’re often better spending your savings on a mortgage deposit than clearing student debt.
  • Close unused credit cards. If you have access to credit from other sources, this could harm your chances of being approved for a mortgage, as it means you have the opportunity to get into additional future debt. The more debts you clear, the better.
  • Fix your credit history. An imperfect credit record can unnecessarily affect on your borrowing power, so check to see whether you can fix any mistakes that appear on your credit record.
  • Consider using specialist mortgage lenders. There are mortgage lenders who specialise in offering deals to applicants with a poor credit score. These companies offer far higher rates than traditional lenders though.

How do mortgage lenders feel about student loan debt?

We asked some of the UK’s major mortgage lenders about their policies on mortgage applicants with student loan debt. Here is what they told us.

ProviderWhat it told usCompare
BarclaysApplicants still paying off their student debt are acceptable.Compare with broker
Halifax/Lloyds Bank/Bank of ScotlandCommitments being paid to student loans will be factored into our affordability assessment in the same way as other loan commitments.Compare with broker
SantanderStudent loan debt will be assessed as part of your affordability checks. Compare with broker
Virgin MoneyThe repayment of the loan will be considered in the affordability assessment.Compare with broker
Yorkshire BankApplicants paying off their student loans will still be considered. Compare with broker

Our verdict

If you have a student loan, as long as you can prove you’ll be able to pay off the mortgage you’re applying for, you shouldn’t have to worry about it scaring off any providers.

However, there are various ways that you can increase your chances, like fixing your credit history and paying off your most expensive debts first, so be sure to follow the advice in this guide. And check out our multiple mortgage lender reviews to search for one that suits you best.

Finder survey: What aspects of a mortgage matter most to Brits when choosing a one?

Response
Overall cost45.74%
Initial rate36.24%
Flexibility26.84%
Whether there's an application fee20.16%
Provider reputation18.12%
Customer service16.28%
Don't know14.83%
I would not choose a mortgage14.24%
Other0.48%
Source: Finder survey by Censuswide of Brits, December 2023
We show offers we can track - that's not every product on the market...yet. Unless we've said otherwise, products are in no particular order. The terms "best", "top", "cheap" (and variations of these) aren't ratings, though we always explain what's great about a product when we highlight it. This is subject to our terms of use. When you make major financial decisions, consider getting independent financial advice. Always consider your own circumstances when you compare products so you get what's right for you.

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