Student debt and mortgages

The Association of Mortgage Intermediaries (AMI) has recently raised concerns about the rising level of student debt in the UK.

The most recent figures from the Student Loans Company show that for the academic year 2013-14, in England alone, £9bn was lent to students to fund their higher education. With net repayments standing at just £1.5bn, the outstanding balance on student loans at the end of the financial year amounted to £54.4bn. This represents an increase of 18% compared to the previous year. On average, students in England who started to repay their debt in 2013 owed £18,650 but this rose to an average debt of £20,100 for the 2014 repayment group.

In Northern Ireland the outstanding balance for the same year was £2.2bn; for students in

Scotland it was £3.1bn and for students in Wales it was £2.6bn.

This is relevant in two contexts:

1. Firstly the value of university education has come down in terms of its effect on earnings capacity.
2. Secondly, Britain is building a debt mountain for the next generation which is already dramatically affecting affordability and is only set to get worse.

Research from the Bank of England shows that since 1995, the effect of having a degree has fallen substantially. In 1995 having a degree would, on average, increase the salary you could expect to receive by 45% relative to having no qualifications at all. Twenty years later in 2015 this premium had fallen to 34%.

The outstanding balances on student loans are also rising dramatically year-on-year. With university tuition fees up to £9,000 per academic year, not including living expenses, this debt is going to continue to build up. Payments are already failing to keep pace and with pressure on earnings, this ratio will only worsen.

The question is whether the government will be forced to write off all or some of this debt at some point in the future as it is increasingly becoming a real risk for the economy and in future will drag even more heavily on affordability for those wishing to buy their first home.

Post courtesy of AMI Quarterly Bulletin Q1 2016