Mortgage affordability warning over student loans

Taking out a student loan could affect future prospects of getting the right mortgage for buying a home, a Hampshire accountancy firm is warning young people.

Michaela Johns, Director and education sector specialist at Southampton-based HWB Chartered Accountants, says it’s because lenders take student loan repayments into account when assessing mortgage affordability.

She has urged young people to consider other forms of loans and to seek independent professional financial advice before signing up for a student loan.

Michaela said: “The key point is that student loans are not ‘free money’. Understanding how interest works and how repayments affect future goals, such as buying a home, is an important part of long-term financial planning.

“Student loans are taken into account when applying for a mortgage. While they do not appear on a credit report, lenders include the monthly repayment when assessing affordability.

“This can reduce how much a first-time buyer is able to borrow, even early in their career when earnings are not high, but above the student loan repayment threshold.”

She added that commercial borrowing could be cheaper overall, but only if repayments were affordable and maintained, while student loans reduced early‑career pressure, but could cost more over a lifetime.

“There is a trade‑off between certainty and protection. The cheapest option depends on expected earnings, time to repay, appetite for risk and wider family financial planning.

“Student loans start accruing interest from the moment the first payment is made, often while students are still studying.

“In higher inflation periods, balances can grow quickly. While student loans offer important protections, they also affect mortgage affordability, as repayments are treated as a regular outgoing.

“For some graduates, it is sensible to review the long-term cost and consider alternatives as part of wider financial planning.”

Michaela said that interest on student loans starts from the day the first payment is made, not from graduation. This means balances can increase throughout a degree and beyond, particularly when interest rates linked to inflation are higher.

Although repayments are income-based and only begin once earnings exceed the threshold, the loan balance itself can continue to grow for many years.

From a financial planning perspective, some graduates and families consider alternative funding options where they expect to repay the full amount, a lower or fixed interest rate is available and they want certainty over repayments and total cost.

However, she said that commercial borrowing does not offer the same safeguards as student loans and should only be considered with professional advice.

Michaela added: “Going to university and buying your first house are two of the most important things facing young people and if an unwise decision is made it can have ramifications for years.

“The high cost of student loans and associated debt may also act as a major deterrent in discouraging some young people from attending university, particularly for those from disadvantaged backgrounds, which may well lead to future skills shortages.”

Latest Government figures show that currently almost £21 billion per year is loaned to around 1.5 million higher education students in England.

The value of outstanding loans at the end of March 2025 reached £267 billion. The Government forecasts the value of outstanding loans to reach around £500 billion (2023‑24 prices) by the late-2040s.

The average debt among borrowers who finished their course in 2024 was £53,000 when they first became liable to repay this debt (April 2025).