Jump to content
House Price Crash Forum
Sign in to follow this  
northernbear

How Will Student Debt Be Viewed In New Financial World

Recommended Posts

hi all,

I was wondering how do you think student debt will be viewed by mortage companies in the future, I'd particularily like to hear from anyone who borrowed after the last recession and their experiences with/without debt.

At present i have about 11k in student loans, being paid back at about 50 quid a month or so, interest rate is currently 4.8% but tracks the rpi value of a fixed month so could be up or down depending on the fiddle. At present no real difference in interest gained minus tax on savings and cost to service debt.

I have savings of about 15k, saving about 600 a month, (my outgoing are small - basically i just carried on living like a student when i started work.)

My question is, will it be 'better' to go asking for a mortage in two years time with 30k of cash for a deposit and 10k of student debt or 20k of cash and no debt.

I guess the larger the deposit the less risk for the mortage lender, which should make it cheaper to borrow right?

I expect i will be looking to buy a house 100 - 150k, so borrowing 80 - 120, that level of borrowing would be which would be about 3-4 times my income i two years time.

I also like holding the cash as would provide a safety net if i lose my job, which is unlikely but not impossible.

If my debt was on a credit card etc then i'd wipe it off course but student debt is a very cheap borrowing to service and doesnt need servicing if unemployed.

If houses are still crazy priced in two years I'll continue renting and saving but ultimately I'd like my own place.

what would you do?

Share this post


Link to post
Share on other sites

i'd be interested to hear peoples opinion on how how they think student debt or debt in general will be viewed in the new financial world, particularily if they have first hand experience from the last recession,

At present i have about 10k of student debt, and about 15k of savings.

I expect i will think about buying maybe in 2-3 yrs time.

At that point will it be better in terms of availability of mortages/getting lower rate to have 30k of savings and 10k of student loans or no loans and 20k in savings.

At present it makes no sense to pay of the debt as i can beat the cost in interest with gains on savings, plus it provides a saftey net should i lose my job, however the student debt will reset with changes in the rpi so may not be the same position in a few months time.

thanks for all advice and opinion

Share this post


Link to post
Share on other sites
i'd be interested to hear peoples opinion on how how they think student debt or debt in general will be viewed in the new financial world, particularily if they have first hand experience from the last recession,

At present i have about 10k of student debt, and about 15k of savings.

I expect i will think about buying maybe in 2-3 yrs time.

At that point will it be better in terms of availability of mortages/getting lower rate to have 30k of savings and 10k of student loans or no loans and 20k in savings.

At present it makes no sense to pay of the debt as i can beat the cost in interest with gains on savings, plus it provides a saftey net should i lose my job, however the student debt will reset with changes in the rpi so may not be the same position in a few months time.

thanks for all advice and opinion

Personally, I'd go with the 30k savings and 10k debt. If the student debt proves to be a problem when seeking a mortgage, you can pay it off. If you've already done so you can't get the 10k back for your deposit.

Share this post


Link to post
Share on other sites
hi all,

I was wondering how do you think student debt will be viewed by mortage companies in the future, I'd particularily like to hear from anyone who borrowed after the last recession and their experiences with/without debt.

At present i have about 11k in student loans, being paid back at about 50 quid a month or so, interest rate is currently 4.8% but tracks the rpi value of a fixed month so could be up or down depending on the fiddle. At present no real difference in interest gained minus tax on savings and cost to service debt.

I have savings of about 15k, saving about 600 a month, (my outgoing are small - basically i just carried on living like a student when i started work.)

My question is, will it be 'better' to go asking for a mortage in two years time with 30k of cash for a deposit and 10k of student debt or 20k of cash and no debt.

I guess the larger the deposit the less risk for the mortage lender, which should make it cheaper to borrow right?

I expect i will be looking to buy a house 100 - 150k, so borrowing 80 - 120, that level of borrowing would be which would be about 3-4 times my income i two years time.

I also like holding the cash as would provide a safety net if i lose my job, which is unlikely but not impossible.

If my debt was on a credit card etc then i'd wipe it off course but student debt is a very cheap borrowing to service and doesnt need servicing if unemployed.

If houses are still crazy priced in two years I'll continue renting and saving but ultimately I'd like my own place.

what would you do?

Well student debt is cheap when compared to other forms of debt so theres no point in paying it down if you have other debts, pay those first it'll be cheaper.

At the rates you are quoting you can get savings rates in excess of the amount your student debt is costing so tax to oneside your savings are working quite hard for you, or should be.

From lenders perspective they look at your credit file which I think does not include student debt, and many exclude student debt from their calculations when doing affordabilty.

From your own perspective you need to make sure you can afford any debt including your student debt.

Personally I'd keep the student debt and build up savings... if when you buy things have changed you can pay off the student debt using savings... in the meantime the debt is at a lower rate than savings and cheaper than any other kind of borrowing so I'd keep it running alongside your savings. The felxibility may be of benefit down the tracks. Your student should also reduce over the next two or three years when housing should have reached bottom.

Share this post


Link to post
Share on other sites
Well student debt is cheap when compared to other forms of debt so theres no point in paying it down if you have other debts, pay those first it'll be cheaper.

Yeah I'd prefer not to pay it down. Only they keep sending me nasty letters! ;)

On a sidenote, how do you get away with only paying them £50 a month? I owe a similar amount and my repayments are £160 pm.

Edited by frozen_out

Share this post


Link to post
Share on other sites
Yeah I'd prefer not to pay it down. Only they keep sending me nasty letters! ;)

On a sidenote, how do you get away with only paying them £50 a month? I owe a similar amount and my repayments are £160 pm.

9% of gross income above 15k is used to pay off you're loan if you're on PAYEE. If you're self employed it's the same amount, but it depends on how good your accountant is.

£50/month = £21,666 declared annual income.

£160/month = £36,333 declared annual income.

As for getting a mortgage approved with a student loan - when I was getting mine sorted it depended on which method they used - there were 2 choices.

Salary multipliers - they'd loan me up to 3.5x whatever was on my last P60, and didn't care about other outgoings so long as my credit score was over 950.

Affordability - They look at 6 months worth of income and outgoings and would work out how much you could pay. This would have taken the student loan into account.

Edited by impatient_mug

Share this post


Link to post
Share on other sites

RPI (all items) went up in the last crash, but if the exact same happens it's only 3 years at a high rate. I'd keep the savings and the mortgage company wouldn't care about student debt anyway. Plus the mortgage rate with deposit is lower and reducing the mortgage upfront saves interest.

Student Loans have such low repayments, historically low interest rates except for spikes they are a very good loan to keep.

88-93

3.5

7.9

8.1

8.2

4

1.9

Share this post


Link to post
Share on other sites
Yeah I'd prefer not to pay it down. Only they keep sending me nasty letters! ;)

On a sidenote, how do you get away with only paying them £50 a month? I owe a similar amount and my repayments are £160 pm.

I can't even get them to take my money from me. They sent me a form after I finished Uni, I filled in my employment details and it said they would start taking payment in April the following year. April comes round and they didn't take anything, so I called and they said send them a letter with my details, still nothing. I call again, they said send another letter but it was likely they wouldn't start taking money until the following April. Well, that was the April just gone and they still haven't taken a penny from me and aren't even sending me a statement anymore. It seems they don't want my money so i'm not going to badger them about it anymore.

Share this post


Link to post
Share on other sites

Studen Loans - probably will be great instruments that will be securitised and sold off.

You can't choose not to repay on them as they are taken out of your pay packet first

You can't go bankcrupt on them - exempt

And they are all AAA rated because the debtors are highly educated university leavers [they may leave with a crap degree - but don't tell investors that]

Edited by notanewmember

Share this post


Link to post
Share on other sites
I can't even get them to take my money from me. They sent me a form after I finished Uni, I filled in my employment details and it said they would start taking payment in April the following year. April comes round and they didn't take anything, so I called and they said send them a letter with my details, still nothing. I call again, they said send another letter but it was likely they wouldn't start taking money until the following April. Well, that was the April just gone and they still haven't taken a penny from me and aren't even sending me a statement anymore. It seems they don't want my money so i'm not going to badger them about it anymore.

Yes they are wildly incompetent. Your employer should make the arrangements on your behalf; it will show on your monthly pay slip. Badger your employer to sort it - it’s not worth paying interest on money that could be paid back.

The statements are completely hopeless; they seem to be a year behind or simply missing repayments. I need to chase them up myself actually..

Share this post


Link to post
Share on other sites
Yes they are wildly incompetent. Your employer should make the arrangements on your behalf; it will show on your monthly pay slip. Badger your employer to sort it - it’s not worth paying interest on money that could be paid back.

The statements are completely hopeless; they seem to be a year behind or simply missing repayments. I need to chase them up myself actually..

Can't be arsed, i've done my bit as far as i'm concerned. It's also worth noting that after a certain period of time (20 years I think) the remaining balance of the loan gets cleared as it would usually be a measley amount by that point. Even if i've been badly informed all student debt gets cleared when you reach state retirement age. So if they don't make the effort quickly enough then i'm free.

Share this post


Link to post
Share on other sites

In the exact same position, they just don't take money off me. I've had two letters over the years saying that I should have been paying it and the payments will begin on the Xth of the Xth but it never happens. When I ring them I always declare everything and am completely truthful with them, but still they just don't take it. One time, on the phone, they even said "don't worry about it if it's not being taken out, you'll just pay the interest", my impression is they're not that bothered really!

I've basically made a fair few voluntary payments of sizeable amounts and also have a nice lump of savings offsetting it.

As for their *ahem* competency, I think when I ever do pay it off I'll do it gradually in lumps and make sure I receive every receipt as I've heard soooo many stories about people paying it off and then the SLC saying 3 years later "oh, sorry we lost your payments you owe us 20 billion pounds"

Edited by meow

Share this post


Link to post
Share on other sites
Can't be arsed, i've done my bit as far as i'm concerned. It's also worth noting that after a certain period of time (20 years I think) the remaining balance of the loan gets cleared as it would usually be a measley amount by that point. Even if i've been badly informed all student debt gets cleared when you reach state retirement age. So if they don't make the effort quickly enough then i'm free.

I wish the "get out clause" was much clearer, nobody seems to really understand it. I'm hoping to emigrate at some point, do I still have to pay it back? Wish I knew.

Share this post


Link to post
Share on other sites
I can't even get them to take my money from me. They sent me a form after I finished Uni, I filled in my employment details and it said they would start taking payment in April the following year. April comes round and they didn't take anything, so I called and they said send them a letter with my details, still nothing. I call again, they said send another letter but it was likely they wouldn't start taking money until the following April. Well, that was the April just gone and they still haven't taken a penny from me and aren't even sending me a statement anymore. It seems they don't want my money so i'm not going to badger them about it anymore.

Sort it ASAP, you will be accruing lots of interest and your SL will be rising...

Share this post


Link to post
Share on other sites
I wish the "get out clause" was much clearer, nobody seems to really understand it. I'm hoping to emigrate at some point, do I still have to pay it back? Wish I knew.

The only get out clause I know for certain is that it gets wiped when you reach state retirement age. Only about 44 years of avoidance to go.

It is a big problem though, I have two friends that aren't having their taken out either. One of them graduated 8 years ago and hasn't had any correspondence from them in that entire time.

Share this post


Link to post
Share on other sites
Sort it ASAP, you will be accruing lots of interest and your SL will be rising...

Not if you have the money to pay it off sitting in a savings account

Share this post


Link to post
Share on other sites
Not if you have the money to pay it off sitting in a savings account

Student loans are fascinating to me, because they take money that is already yours, give it to you and then charge you interest for doing so.

Quite why anyone would fall for this is beyond me totally.

Share this post


Link to post
Share on other sites
Student loans are fascinating to me, because they take money that is already yours, give it to you and then charge you interest for doing so.

Quite why anyone would fall for this is beyond me totally.

But they only charge interest at the rate of inflation, so essentially you pay nothing. And the money isn't yours, it comes from Government funds. Technically yours, but it's unlikely you will have paid £14k in tax at the age of 19.

Unfortunately many people have no choice but to take one if they want to go into higher education. The really annoying thing about it is I know plenty of people with wealthy parents who also took a student loan, shoved it in a high interest account and then either paid back in full at the end or had a decent amount for a house deposit. At least I know the equity they put in their houses has evaporated already.

Share this post


Link to post
Share on other sites
But they only charge interest at the rate of inflation, so essentially you pay nothing. And the money isn't yours, it comes from Government funds. Technically yours, but it's unlikely you will have paid £14k in tax at the age of 19.

Unfortunately many people have no choice but to take one if they want to go into higher education. The really annoying thing about it is I know plenty of people with wealthy parents who also took a student loan, shoved it in a high interest account and then either paid back in full at the end or had a decent amount for a house deposit. At least I know the equity they put in their houses has evaporated already.

Oh no.

Each citizen is allocated a certain amount from central funds, which have been borrowed using the birth certificates as collateral based on projected future income - this usually goes to the regional government organisations where they live. In the case of a student loan, some of that allocation is given to you directly.

Share this post


Link to post
Share on other sites
Studen Loans - probably will be great instruments that will be securitised and sold off.

You can't choose not to repay on them as they are taken out of your pay packet first

You can't go bankcrupt on them - exempt

And they are all AAA rated because the debtors are highly educated university leavers [they may leave with a crap degree - but don't tell investors that]

I've never known what happens to those students at a certain ex-Poly, which had better remain nameless, where about 15% of the students were of overseas (mostly though not exclusively West African) ethnic origin, British born in the UK, educated in Africa (Mum working in the UK and remitting cash to family), came back to the UK, worked for 3 years to qualify as "Home" students, graduate then hop it back to Africa where their degrees more or less guarantee them a good job. How the hell can the SLC possibly collect??

Share this post


Link to post
Share on other sites
9% of gross income above 15k is used to pay off you're loan if you're on PAYEE. If you're self employed it's the same amount, but it depends on how good your accountant is.

£50/month = £21,666 declared annual income.

£160/month = £36,333 declared annual income.

As for getting a mortgage approved with a student loan - when I was getting mine sorted it depended on which method they used - there were 2 choices.

Salary multipliers - they'd loan me up to 3.5x whatever was on my last P60, and didn't care about other outgoings so long as my credit score was over 950.

Affordability - They look at 6 months worth of income and outgoings and would work out how much you could pay. This would have taken the student loan into account.

I assumed with the amount outstanding stated the OP was on the old 'mortgage' style loan, where you just pay it back over 5 years regardless.

Edited by frozen_out

Share this post


Link to post
Share on other sites

Student loan commitments will just further drag on aggregrate demand with the miracle economy dragging out the repayments for a lifetime. The loan is linked to RPI but pay settlements are running at less than RPI. Joy.

Share this post


Link to post
Share on other sites

I have around 12k loan but just a bit more than that in savings. I'm keeping the savings and not paying it off as the interest rates are favourable and it's better to have savings incase I hit problems (Job loss, redundancy, car breaking etc.)

I'd recommend the same to most people.

The only points to consider are, if you are not being charged you should stick the amount of money you should be paying off in a high interest savings account. They are bound to catch up with you eventually and want their money back so you may as well be prepared.

If you are not on much above 20k it is very likely that the interest payments will exceed the monthly payments you make. In this case I'd consider working out a lump sum that will at least mean there is no net increase in your loan amount over time.

I think the interest rate is due to drop from 4.8 down to 3.6 if it hasn't already making paying off even less worthwhile.

When I have sufficient savings I will pay it off in full as I don't like the (or any) debt. When you do pay it off be careful. Lots of people have been over charged as you continue to get the money taken out of your wage for the year if you pay it off in May.

Best bet would be to pay off the vast majority in lump sums over the year (as above I don't trust them to prcoess one big payment) and then wait until you get your statement before paying off the final amount. If you over pay it can (apparently) take an age to get the money back.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 399 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.