Graduates who worry that their student loans may impact their credit rating and affordability checks for a mortgage can breathe a sigh of relief, according to Brian Murphy, head of lending at Mortgage Advice Bureau.
Murphy explained that student loans are complex and are largely misunderstood. Contrary to popular belief, student loans do not affect a person’s credit file or score, nor do they outright prevent them from getting a mortgage.
Mortgage assessors consider the broader financial picture and the ability to budget and save effectively, which are determining factors in the success of a mortgage application.
Murphy also advised current students and graduates with student loans to prepare their finances and calculate how upcoming changes to student loan payback thresholds will impact them.
Doing so will help avoid getting caught out and make necessary adjustments to their spending accordingly.
Murphy said: “The impact a student loan has on an individual’s credit rating and affordability checks is a concern felt by many graduates.
“Debt can be an anxiety-inducing prospect, especially when there is a lack of understanding around it. Understandably, having loans (let alone those that are worth a good few tens of thousands) can feel rather overwhelming, especially if you think they will affect your future finances.
“However, the good news is that student loans are complex and thus largely misunderstood.
“Whilst debt is, for the most part, a daunting and intimidating topic, student loans are significantly different from all other types of borrowing.
“For instance, contrary to the thoughts of many, student loans do not affect one’s credit file or score. Likewise, they do not outright prevent someone from getting a mortgage.
“Equally, changes to student loan interest rates also do not directly impact your likelihood of having a mortgage application approved.
“Rather than homing in on the fact that you have a student loan, mortgage application assessors will take into consideration the broader picture and consider your financial circumstances as a whole.
“Being able to budget and save effectively, regardless of whether you have a student loan or not, are two determining factors when it comes down to the success of a mortgage application.
“For current students and graduates with a student loan, one thing to consider at the moment is the government’s upcoming changes to student loan payback thresholds.
“For those affected by these changes, it’s advised that you set some time aside to prepare your finances and calculate how this will impact them. Doing so will help you to not get caught out and, if necessary, adjust your spending accordingly.”
