First-home buyers often fear their student loans will be held against them by lenders. Not so, says mortgage adviser Campbell Hastie of Go2Guys.
"A lot of people are down in the mouth about their student debt when they come to us," he says. "They say: 'I have a student loan, is that going to affect my ability to borrow?'"
The reality is that a student loan is "a capacity thing", says Hastie. It's not the kiss of death. It just means you can borrow slightly less. The lender looks at the borrower's monthly minimum payments to the Inland Revenue Department (IRD) and reduces the money available to make mortgage repayments by that amount.
Student debt is usually considered "good debt" by lenders, so the banks don't judge borrowers, says Hastie. In this case, the "good debt" means the qualification it paid for should result in a higher salary. It's not like consumer debt such as HPs, personal loans and credit cards which lenders can view as a black mark on the home-buyer's character.
Someone earning $50,000 a year, for example, will be paying $260 a month to the IRD in student loan repayments, which will mean you'll be able to borrow about $50,000 less than you would otherwise.
Professionals often have chunkier loans and medical professionals may owe $80,000 to $100,000, says Hastie. But they can still borrow to buy a house.
Jeff Royle, mortgage broker at iLender, says a mortgage applicant had a $125,000 student loan. The borrower, who had teamed up with a brother to buy, was still a student. Ironically, because he was still studying and not making repayments on the student loan it wasn't included in the bank's calculation. "We ignore the debt," says Royle. "Crazy but true."
Most couples have paid down some of their student loans by the time they are ready to buy a house, says Hastie. Having made those repayments, they're probably in a better head space to service a mortgage anyway.
"They have a sense of the consequences of the debt and thehandbrake it can put on them," he says. "It makes them a little bit cautious about taking on debt."
Student debt combined with consumer debt does make it harder to borrow for a mortgage, mostly because of the capacity issue. Because you're making other debt repayments you have less to make in mortgage payments.
Student loan holders are buying rental properties in the current market, says Royle, as many are first-time buyers and they can't afford Auckland prices.
A recent example was of a couple with a $35,000 deposit and one student loan of the same amount. The pair borrowed 90 per cent from a non-bank lender to buy a $325,000 rental property in Tauranga. The husband was paying $650 a month in student loan repayments, which was taken into account for the borrowing.