Student Loan Debt Is Now Considered When Applying For A Mortgage

[cashinmattress]

http://www.thisismoney.co.uk/money/mortgageshome/article-2646007/Student-loan-debt-IS-considered-applying-mortgage.html

Graduates with a mountain of student debt could find their future plans of buying a home thwarted after the Financial Conduct Authority confirmed the debts are now considered by mortgage lenders after the introduction of the Mortgage Market Review in April.

In the current academic year, university fees can be up to £9,000 per annum, not counting accommodation and cost of living, meaning debts of tens of thousands of pounds for students.

But despite recent advice suggesting otherwise, graduates will now have these student loan debts included in the affordability calculation for a mortgage.

Alexander Burgess, British Money director and a former MBA student, received confirmation from the FCA that student debt is now considered - while a spokesman also confirmed it to This is Money.

The MMR guidelines will force all mortgage lenders to consider student loans as a committed expenditure, greatly reducing the amount they are likely to offer.

...

The news will be a huge blow for those who have left university in the last decade, who face higher university fees and many of whom would have been in employment for years and saving up for a deposit, to only now find their future plans could be jeopardy.

A 'degree' will feel like a 100 tonne shackle for those unfortunate graduates.

However, student loans are a liability and will have consequences on your ability to repay debts.

At least you can clear the mortgage on a bankruptcy.

[crash2006]

http://www.thisismoney.co.uk/money/mortgageshome/article-2646007/Student-loan-debt-IS-considered-applying-mortgage.html

A 'degree' will feel like a 100 tonne shackle for those unfortunate graduates.

However, student loans are a liability and will have consequences on your ability to repay debts.

At least you can clear the mortgage on a bankruptcy.

I did say that when they started to sell if the student debt to investors they would need a way to make sure that the debt gets paid back.

[Wurzel Of Highbridge]

This is good news for students as it means lower house prices and rents, but then we knew that back in '10 when the NASTI party bought in the higher student fees.

[Starla]

Graduates with a mountain of student debt could find their future plans of buying a home thwarted after the Financial Conduct Authority confirmed the debts are now considered by mortgage lenders after the introduction of the Mortgage Market Review in April.

In the current academic year, university fees can be up to £9,000 per annum, not counting accommodation and cost of living, meaning debts of tens of thousands of pounds for students.

But despite recent advice suggesting otherwise, graduates will now have these student loan debts included in the affordability calculation for a mortgage.

While I think the amount of debt students leave uni with is tragic, it's perfectly reasonable to expect those debts to effect your mortgage borrowing. Otherwise you end up owing more than you can possibly pay back, which is the point of the MMR and also common sense.

[katchytitle]

Look at the graph of people in the UK split by age group:

The ponzi is collapsing + those that bought a house in 1980s for 100K and no student debt now sell houses to young people with 50K of student debt for 500K. When will the young revolt? Or are they already doing that by lowering productivity? Not much incentive to work if you can't afford the basics you were promised. I know its entitlement but the government did ask for an aspirational youth - here they are!

http://katchytitle.blogspot.com/2013/08/measures-for-reducing-youth.html

The ponzi scheme is breaking down. Where

[R K]

Still, they can always rent a room from their professors' BTL portfolio

[R K]

Look at the graph of people in the UK split by age group:

The ponzi is collapsing + those that bought a house in 1980s for 100K and no student debt now sell houses to young people with 50K of student debt for 500K. When will the young revolt? Or are they already doing that by lowering productivity? Not much incentive to work if you can't afford the basics you were promised. I know its entitlement but the government did ask for an aspirational youth - here they are!

http://katchytitle.blogspot.com/2013/08/measures-for-reducing-youth.html

The ponzi scheme is breaking down. Where

Very odd choice of lines on that chart.

If anything you appear to be showing increasing demand from the below 40s. Is that what you meant to show?

[Venger]

Very odd choice of lines on that chart.

If anything you appear to be showing increasing demand from the below 40s. Is that what you meant to show?

You can buy houses with demand alone? Demand, the new super currency.

[Quicken]

While I think the amount of debt students leave uni with is tragic, it's perfectly reasonable to expect those debts to effect your mortgage borrowing. Otherwise you end up owing more than you can possibly pay back, which is the point of the MMR and also common sense.

+1. Student loans are committed expenditure; it's just common sense.

[R K]

You can buy houses with demand alone? Demand, the new super currency.

Oh do foxtrot oscar if you've nothing useful to contribute. The bizarrely drawn lines on the chart don't in any way equate with the population bars on the chart. You can see that can't you? Or perhaps you can't.

YIt's got zilch to do with currencies.

[Liquid Goldfish]

Aren't student loans collected through PAYE? So when a lender is assessing incomings and outgoings surely they are taken into account automatically because the applicant's net income will be reduced?

[Democorruptcy]

Look at the graph of people in the UK split by age group:

The ponzi is collapsing + those that bought a house in 1980s for 100K and no student debt now sell houses to young people with 50K of student debt for 500K. When will the young revolt? Or are they already doing that by lowering productivity? Not much incentive to work if you can't afford the basics you were promised. I know its entitlement but the government did ask for an aspirational youth - here they are!

£100k in the 80's? It must have been a mansion. Average price was about only £59k in 1998

Revolt or "aspire" sign up to a shoe box with 5x joint income 50+ year mortgages (no retirement) with 20% of the price ignored by HTB.

[winkie]

....It is not a student loan, it is a student tax.

[Venger]

Oh do foxtrot oscar if you've nothing useful to contribute. The bizarrely drawn lines on the chart don't in any way equate with the population bars on the chart. You can see that can't you? Or perhaps you can't.

YIt's got zilch to do with currencies.

The chart is confusing to me, yes. Perhaps it will run smoothly your way with no house price crash, and instead campaigning for a little bit of a rise in minimum wage.

However I do understand the premise of this bit, even if the numbers are off. Sort of house I'm after was £36K in 1982... now valued at around £400,000. I'm personally lowering consumption.

Look at the graph of people in the UK split by age group:

The ponzi is collapsing + those that bought a house in 1980s for 100K and no student debt now sell houses to young people with 50K of student debt for 500K. When will the young revolt? Or are they already doing that by lowering productivity? Not much incentive to work if you can't afford the basics you were promised. I know its entitlement but the government did ask for an aspirational youth - here they are!

[Quicken]

Aren't student loans collected through PAYE? So when a lender is assessing incomings and outgoings surely they are taken into account automatically because the applicant's net income will be reduced?

It's effectively an extra 9% income tax for annual income over 21k, with RPI +3% interest on the principal.

[The Knimbies who say No]

That RPI+3% is really the kicker which turns £27k nominal debt into something which will likely never be repaid. It accumulates at this rate throughout the degree course. Say someone takes £9k per annum at the start of term, and RPI is on target at 2.5%

Year 1: £9k

Year 2: £9k + 1.055*£9k = £18,495

Year 3: £9k + 1.055*£18,495 = £28,512

By the time they graduate nine months after the start of year 3, the debt will be £29,680 and rising by £135/month at that point.

£135/month loan repayment deduction requires a salary of roughly £21,000 + (£135*12)/0.09 = £39k!!

Very few grads will be hitting those salary levels the day after they graduate, required simply to keep the outstanding debt stable never mind repay it.

It will be apparent very quickly that student loan debt is off to the moon for most.

It could be the case that for someone who never attains the £21k threshold salary, the debt being written off after 30 years may be close to £150k.

Edited June 2, 2014 by Joan of The Tower

[Bloo Loo]

more downward pressure.

got a dog or cat?...another £10 you cant put to the mortgage every week.

[wonderpup]

So until now this debt was considered to exist in some twilight zone where it would have no impact on the outgoings of the people involved?

Clearly the banks are struggling with this new innovative idea that they should actually find out if people can pay back the money they manufacture for them.

[mobfant]

I'm with wonderpup. This is a sensible measure from the banks. But it's another thorn in the side of the young. Oops.

[Liquid Goldfish]

From what I can tell from Googling, lenders were already taking student loan repayments into account - this question been asked several times and the reply has been the same - see e.g. below from 2011 (also from This Is Money). There doesn't seem to be any change under the MMR. It seems an invented story by the Wail - I wonder what they're after?

David Hollingsworth, of London and Country Mortgages, replies: Lenders will all have their own criteria that they use to assess how much they are prepared to lend an individual.

They will obviously want to make sure that the property value is sufficient to be good security for the mortgage but much of the assessment will come down to the level of income and outgoings.

Years ago lenders tended to have a standard income multiple that they would apply having taken account of any other credit commitments.

However, in recent years lenders have developed more sophisticated affordability tests that make a more robust assessment of a borrower's income and outgoings.

If you are making repayments on the student loan then lenders will take account of the payment like any other regular commitment as part of its affordability test.

Any type of loan commitment will generally have the effect of reducing the amount of available borrowing.

Edited June 2, 2014 by oldsport

[little fish]

Some of the old specialist lenders, Preferred, Mortgages Plc didn't specify student loan repayments as a stand alone question. They did however ask for a list of all monthly outgoings and total debt amount. Halifax, Nationwide and other main stream lenders regularly ask for student loan payment figures. I think this is being made an issue now purely because so many people go to university and the debt is so large.

[1929crash]

So until now this debt was considered to exist in some twilight zone where it would have no impact on the outgoings of the people involved?

Clearly the banks are struggling with this new innovative idea that they should actually find out if people can pay back the money they manufacture for them.

The Lib Dems are spinning their betrayal of students by saying that the new loan/fees structure is basically just a graduate tax. Clearly, this news -while some on here may welcome it - proves that the new structure is anything but a graduate tax.

Given that you can't get rid of the debt by bankruptcy this is clearly going to put most new graduates out of the market for buying homes. A generation of renting for them.

It might have the effect of bringing down HPI but I suspect the BTL brigade will fill the gap. This stuff might just burst the university bubble though.

Edited June 2, 2014 by 1929crash

[1929crash]

PS to UKIP: Put out a leaflet on mortgage eligibility for garduates between now and Thursday in Newark - maybe some parents will wake up to what is being done to their kids.

[Guest]

That RPI+3% is really the kicker which turns £27k nominal debt into something which will likely never be repaid. It accumulates at this rate throughout the degree course. Say someone takes £9k per annum at the start of term, and RPI is on target at 2.5%

Year 1: £9k

Year 2: £9k + 1.055*£9k = £18,495

Year 3: £9k + 1.055*£18,495 = £28,512

By the time they graduate nine months after the start of year 3, the debt will be £29,680 and rising by £135/month at that point.

It's even worse than this. Most students also require the living costs portion of the loan, meaning they're borrowing £14,555 per year (£16,751 in London). So the numbers become:

Year 1: £14,555

Year 2: £14,555 + 1.055 * £14,555 = £29,910

Year 3: £14,555 + 1.055 * £29,910 = £46,110

So you start life about 50k in debt straight off. The repayment programme is carefully designed so that you'll never pay it off (without throwing extra money at it). I think you have to be earning over 50k or so before your PAYE contributions actually make a dent in the principal - and how many graduates start on 50k?

These poor sods will be paying the 9% extra tax their whole lives.

[The Knimbies who say No]

It's even worse than this. Most students also require the living costs portion of the loan, meaning they're borrowing £14,555 per year (£16,751 in London). So the numbers become:

Year 1: £14,555

Year 2: £14,555 + 1.055 * £14,555 = £29,910

Year 3: £14,555 + 1.055 * £29,910 = £46,110

So you start life about 50k in debt straight off. The repayment programme is carefully designed so that you'll never pay it off (without throwing extra money at it). I think you have to be earning over 50k or so before your PAYE contributions actually make a dent in the principal - and how many graduates start on 50k?

These poor sods will be paying the 9% extra tax their whole lives.

Fair play, I only focussed on the fee element as a astarter. The write offs for the whole lot could be knocking on a quarter of a million with on-target RPI.

Given the utterly preposterous repayment landscape, seems fair enough to ask whether this represents free education in all but name?

This will kill aspiration stone dead for many. Imagine a stay at home parent recieving letter when he/she is 35 telling them their outstanding balance is £100k and rising at £500/month. Somewhat disheartening to put it mildly.

At what point does reality impinge on the bookeeping in all of this though? The loan book may grow rapidly but if it is mostly interest charges which have no hope of being repaid in aggregate what is backing it up? Even at 0% interest plenty will not repay it imo.

Farcical.