Former MBA student, Alexander, received confirmation from the Financial Conduct Authority, as well as lender associations, that recently-introduced Mortgage Market Review guidelines will force all mortgage lenders to consider student loans as a committed expenditure, greatly reducing the amount they are likely to offer.
He comments:
“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. Universities infer it’s not considered to be a debt, credit rating firms are swerving the subject on whether they’ll access student loans records and financial sites such as Money Saving Expert suggest “student loans do not go on credit files”. A view confirmed by a spokesperson at the Student Loan Company who stated: “Student loans data is not shared with credit reference agencies, so they will not impact on an individual's credit score."
The Building Societies Association, however, confirms “under the new MMR rules, student loans are certainly considered to be committed expenditure and will be included as part of the affordability assessment". It goes on to advise "we would urge all borrowers with student loans to be responsible, realistic and reduce their debt elsewhere as much as possible if they are thinking of applying for a mortgage.”
Similarly, Paul Smee, Director General of the CML says:
“In evaluating a mortgage application, lenders will build up a picture of the various calls on an applicant’s income and then determine what level of borrowing he or she can safely sustain. It is in no-one’s interest for over-borrowing to be allowed. But this does not mean that there are red line questions on which the success of an application will turn. Lenders will want to consider an applicant in the round.”
Mortgage broker, London & Country Mortgages agrees saying:
”Any kind of loan payment will be factored into an affordability calculation as a commitment and it will have a direct bearing on how much the applicant can borrow. Any regular cost, including a student loan, will therefore potentially reduce the level of mortgage borrowing.”
A view confirmed by leading academic, Professor Alan Smithers from the University of Buckingham who states: “Juggling with finances is an issue at any stage in life, and it is important that students should be aware of the likely impact of repaying tuition-fee loans on mortgage eligibility. But as graduates they are likely to be earning more than if they had not gone to university so the net effect may be bearable. The near record level of applicants this year means that students are willing to take the risk – if that is they have understood it.”
Alexander adds: “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?”
