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Rising student debts will affect mortgage affordability

Following a review of university tuition fees funding, a mortgage broker has warned that the expected increase in student debts will cause problems for first time buyer eligibility for mortgages.

Aaron Strutt, mortgage broker at Trinity Financial Group has warned that lots of mortgage lenders take into account existing debts, including student loans when making decisions on mortgage affordability for potential new customers. In other words students who have larger than average debts upon leaving university could find that their level of debt affects their suitability for a mortgage.

Mortgage lenders decide if details such as student debts should be included when making affordability calculations. Most lenders will use some form of calculation with each mortgage application, detailing financial details such as outstanding debts.

Mr Strutt said that as debt repayments could affect people’s ability to pay back their mortgage, it was likely that such details would be included.

As an example if you were earning £35,000 per annum, 9 per cent; above £15,000 earnings, would be taken from your salary, not dependant on total debt owed, which would equate to a monthly payment of £150.

Mr Strutt said “looking at a range of lenders, one bank would advance £28,560 less on a mortgage to somebody with this student debt than to somebody without it.”

“The person with the debt would be able to get a mortgage of £139,440, compared with £168,000 for the person without the debt.”

Last week the recommendations of a review by Lord Browne were to scrap the capping of fees charged to students.

Craig Gedey Marketing Manager at Debt Advisory Line said “People will probably not understand that every single debt, including student loans can be used by mortgage lenders when making decisions about how much money to lend.”

“The exact calculation used can vary from lender to lender but ultimately the more debt you have the longer it will take to repay, and this will affect your ability to obtain a mortgage.”

“At Debt Advisory Line we help people to repay their debts. We try to negotiate with lenders so that as much as possible of a customer’s monthly repayment goes on actually paying back the debt rather than interest and charges.”

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