It’s not easy to make big purchases when you have student debt.
According to a recent survey, 75% of graduates said that student debt had affected their ability to purchase a home. With the cost of tuition across a range of educational institutions and degrees topping five figures, many students now graduate with significant debt. And that’s before you even factor in the cost of living and the extras that are involved in student life. Despite the fact that student debt is supposed to be viewed as “good debt,” it is still preventing those who graduate with large debt burdens from moving on to do the important things in life – for example, buying a home.
Debt repayments don’t leave room for a mortgage
Some students find that – after debt repayments – they don’t even have enough left at the end of the month to meet necessities. This means that they are getting in to difficulties with their credit score and having to borrow using bad credit loans on no credit check loans until the next pay cheque. So, it’s perhaps no surprise that many students now don’t feel that they have enough cash coming in to cover a mortgage too. Job instability doesn’t encourage graduates to take the risk of taking on a mortgage in addition to a substantial student debt. Common attitudes among students include: “Even though I have a good paying job now and can make my payments I still often have a fear of not being able to make them, or that I shouldn’t incur any other debt because I don’t want to add to the debt.” It’s fears like these that are keeping a whole generation of student borrowers out of the housing marketing.
Getting a mortgage
Most student loans shouldn’t have an impact on a graduate’s credit score, which of course is one of the major factors in whether a mortgage is available. However, there is another indicator that lenders look at: the debt to income ratio that a potential borrower has. Graduates who still have a lot of debt to repay need a significant graduate salary if they are going to meet the expectations lenders have when it comes to this ratio – and many simply can’t do it. A good example of the way that debt to income ratios are very much out of alignment for student borrowers is the statistic that some 30% of student borrowers are behind on their payments, mostly because they simply can’t afford the payments. None of this looks good for student borrowers who are trying to get a mortgage.
Down payments and deposits
Getting a foot on the property ladder requires a substantial up front financial investment. First time buyers need between 5% and 25% of the property price to be able to get a mortgage. It’s highly likely that graduates who have large student loans don’t have those kinds of sums in savings. It’s also far less likely that they will have parents able and willing to help them out. Plus, with the pressure that repaying the loans puts on income there is no room left to save for down payments and deposits. As a result, many graduates with debt are blocked out of the market before they have even considered whether they could afford a mortgage.