Graduates are to have their student loan borrowing taken into account when applying for a mortgage, the Financial Conduct Authority (FCA) has confirmed. After the introduction of the Mortgage Market Review (MMR) in April this year, many more debts are now being checked as part of affordability tests and this is the latest news to worry those looking to apply for a mortgage.
The tests have been put into place to ensure that borrowers will not experience difficulty if interest rates were to rise, with lenders now checking all outgoings from gym membership to gambling expenditure to coffee buying.
“There appears to be a common misconception among students that anyone who has taken out student finance will have their loan discounted, but this simply isn’t the case,” says Alexander Burgess, director of income protection provider British Money.
He continues, saying, “This is penalising a whole generation who are already saddled with unrealistic proportions of debt just because they have career aspirations that can only be fulfilled through higher education.
“Graduates have loans for an education that a few years ago was free, but are now less likely to secure a mortgage. How is that fair when they do not fully understand the implications of taking on such debts?”
University fees increased in 2012, and now cost up to £9,000 a year for each student to attend their chosen course. According to some reports, up to 45% of graduates won’t earn enough money to pay back their student loans entirely, but any monies they do pay will be taken into account as an outgoing on a mortgage application.
Whilst the debt does not affect your Credit Score and is not currently reported to the credit referencing agencies, any repayments made do affect your overall earnings, as most are now taken from your wages in the same way as tax and National Insurance.
If you are hoping to apply for a mortgage it is important to check that your credit history is held correctly and that it gives you the best possible chance of securing the best rates of borrowing. We advise checking your Credit Report when you initially think about going for a mortgage, in case there are any problems that could take time to be rectified. We can then help to ensure that your Credit Score is in the best possible shape for an application.