Burgess assessed the Financial Conduct Authority’s recently-introduced Mortgage Market Review guidelines and found lenders will consider student loans as a committed expenditure, despite advice to the contrary.
He said: “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’.
“The Building Societies Association, however, confirms ‘under the new MMR rules, student loans are considered to be committed expenditure and will be included as part of the affordability assessment’.”
The BSA said: “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.”
The Council of Mortgage Lenders said the practice of considering student loans as committed expenditure predates the implementation of MMR.
Sue Anderson, head of member and external relations at the CML, said: “Deductions for student loan payments are taken into account by lenders as part of their affordability assessment.
“This has been the case since long before the MMR reforms came in. Because student loan repayments only go up once earnings rise, lenders are likely to use current loan repayments as the basis of the
“committed expenditure” they will take into account for affordability purposes.”
However Burgess believes that the practice could be “penalising a whole generation”.
He said: “This generation is 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?”
Andy Frankish, new homes director at Mortgage Advice Bureau, said the decision to include student loans in affordability calculations was not surprising but conceded that some education on the subject is needed.
Frankish said: “Provided the payments are taken as per the schedule agreed it not a surprise that student loans will be taken into consideration from an affordability perspective they are after all a commitment the customer will have to repay alongside the mortgage.
“Some education may be needed when the student loan is taken out so the potential future mortgage borrower understand that this will be a commitment that is taken into consideration in the future and could affect their maximum borrowing entitlement. Maybe the responsibility for this lies with the student loan companies to make customer aware of this.”
More to follow….