England’s student loan system is operating as what has been described as a permanent "graduate tax" for many borrowers, with implications for those attempting to purchase their first home.
John Fraser-Tucker, Head of Mortgages at Mojo Mortgages, told GB News: "The student loan system in England has evolved into what is effectively a lifelong 'graduate tax' for many, and we are now seeing its material impact on the ability of young professionals to enter the property market."
Although student debt does not appear on credit files in the same way as conventional borrowing, its effect on mortgage affordability and deposit building is becoming more pronounced.
Mr Fraser-Tucker described the impact as "somewhat of a hurdle" for prospective homeowners navigating current market conditions.
TRENDING
Stories
Videos
Your Say
Mortgage lenders assess applications based on monthly take-home pay rather than total outstanding student debt, which for Plan 2 graduates often exceeds £50,000.
The nine per cent repayment on earnings above the threshold is treated as a fixed outgoing, reducing the level of disposable income considered by lenders.
For a graduate earning £35,000 per year, this equates to around £42 per month in repayments, which can affect borrowing calculations.
A non-graduate on the same salary could borrow approximately £157,500, compared with around £148,000 for a graduate, representing a difference of £9,500.
The student loan system could be barring young people from the property ladder
|GETTY
Mr Fraser-Tucker said frozen repayment thresholds combined with wage growth are creating "fiscal drag", meaning increases in earnings are absorbed by repayments rather than improving borrowing potential.
In addition to borrowing limits, student loan repayments also affect the ability to save for a deposit.
Mr Fraser-Tucker said: "If a graduate is paying £200–£300 a month toward their loan, that is money that isn't going into a Lifetime ISA or a high-yield savings account."
He added: "Over a five-year period, that could be the difference between a five per cent deposit and a 10 per cent deposit - the latter of which often unlocks much more competitive mortgage rates."
The combined effect of repayments, rental costs and wider living expenses reduces what has been described as the "velocity of saving".
Over a five-year period, graduates may accumulate around £2,500 less in deposit savings compared with non-graduates on similar salaries.
LATEST DEVELOPMENTS
Chancellor Rachel Reeves has admitted the system is broken but said its far down the list of priorities
| GETTYThe total impact, including reduced borrowing capacity and lower savings, amounts to a difference of around £12,000.
Mr Fraser-Tucker said: "We are seeing a growing 'affordability gap' where even high-earning graduates are being outbid by non-graduates or those with family assistance, simply because the nine per cent deduction on their payslip significantly reduces their maximum loan-to-income ratio."
He added: "This isn't just a personal hurdle; it's a structural barrier."
The analysis suggests some graduates may remain in rented accommodation for an additional three to five years as a result.
Mr Fraser-Tucker said the system "specifically penalises the borrowing capacity of the UK's skilled workforce at the point they are seeking long-term financial stability."