Obtaining a mortgage loan after your student days: illusion or reality?

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According to figures from the Dutch Central Bureau of Statistics (CBS), some 1.4 million (former) students in the Netherlands had a student loan debt in 2019 [1]. This is an increase of 388 thousand compared to 2015, the year in which the new loan system was introduced. Because of this system, many students were forced to finance their studies with borrowed money from the government. On the one hand, the low interest rate ensures that students can borrow money almost for free. However, a student loan debt has several disadvantages as well, including obtaining a mortgage.

When the new loan system was introduced in 2015, various promises were made by politicians regarding education and the student debt itself. By abolishing the basic grant, in the long-term the government would be able to invest an additional amount of 1 billion euros in the quality of education at universities and colleges of higher education. In subsequent years, however, it became apparent that these institutions were investing less money than promised. It was also said that a student loan debt would hardly have any influence on the mortgage amount you can obtain. And although the current loan system has more attractive conditions than the old loan system, afterwards it turned out that a mortgage provider takes your student debt into account as an important factor when determining your maximum mortgage amount.

What will be your mortgage amount?

The maximum mortgage amount you can get from a bank is determined by various factors. Think of the value of the house, the duration and interest rate of the mortgage, and your gross income and expenses. One advantage is that interest rates on mortgages are currently very low. This is partly due to the historically low interest rates in the economy. However, house prices have also risen sharply in recent years. Especially in the Randstad region, prices have been rising fast, sometimes by more than 10% a year. And let the cities in the Randstad region be the exact cities with a lot of employment opportunities for recent graduates and where a successful career is on the horizon.

But how high is the mortgage amount you could get as a starter? As long as you do not have all the data, it is only possible to make a general calculation. But there is also a lot to learn from this calculation. Many mortgage providers use a calculation tool that can provide insights into the expected amount of your mortgage loan.

Let us assume a gross annual income of 45 thousand euros a few years after graduation. Without you having any form of debt, your mortgage will then amount to about 205 thousand euros, which is a reasonable amount. Of course, this amount is lower if you have other kinds of debt or loans. Subsequently, it is undoubted that the question will be asked whether you have built up a DUO student loan debt during your student years. If so, the bank will apply a weighting factor which will estimate the amount you repay to DUO each month. Banks apply a lower weighting factor to debts built up during the new loan system compared to debts built up during the old loan system. A debt built up after July 1, 2015 has a weighting factor of 0.45%, which means that the bank assumes that you repay DUO 0.45% of your original student loan debt each month [2]. The underlying idea is that this repayment is a monthly expense, which allows you to obtain a lower amount of mortgage. Student loan debts built up before July 1, 2015, in other words during the old loan system, have a much higher weighting factor: 0.75%. Therefore, the weighting factor has a major influence on your maximum mortgage amount.

“A student loan debt built up during the new loan system has less disastrous consequences relative to a debt built up during the old loan system.”

Elaborating on the mortgage amount of 205 thousand euros, we now include a student loan debt (built up after July 1, 2015) in the calculation. A debt of 20 thousand euros means a decrease of the maximum mortgage amount to 178 thousand euros. And if your student loan debt amounts to 50 thousand euros, then the mortgage amount you can get is only about 138 thousand euros. In these calculations, we assume that you have no other debts or loans outstanding. If we compare these mortgage amounts with the average national house price of 303 thousand euros in 2019 [3] and take into account that in provinces such as North Holland and Utrecht this house price is considerably higher, the conclusion is quickly drawn: a starter with a substantial student loan debt has a very small chance of being able to buy a house, particularly in the Randstad provinces. Together with a partner’s income, buying a house may be easier, but even in this case a generous income of both persons will be a requirement.

Is it smart to pay off your debt more quickly?

It is clear that a student loan debt has a negative influence on the amount of the mortgage that can be obtained. That is why many current and former students wonder whether it makes sense to repay this debt as soon as possible. On the one hand, this has no advantage. This is because a bank often does not look at the debt amount that is still outstanding, but instead at the original debt amount and your corresponding monthly payments.

On the other hand, extra repayments on the debt amount can be advantageous. Some mortgage providers take extra interim repayments on the student loan debt into account when determining the maximum mortgage amount. In this case, it is advisable to make a well-considered choice between extra repayments and therefore a higher mortgage amount, or to use this money for other purposes such as investing.

Should a student loan debt be reported to the bank or not?

A DUO student debt is not registered at the Dutch Credit Registration Agency (BKR). This means that the mortgage provider cannot check whether you made use of the monthly contribution of ‘Ome DUO’ when you were still a student. Despite this, concealing your student debt is not recommended. Imagine that you run into financial problems, and as a result you are no longer able to fulfill your mortgage payments. In that case, the National Mortgage Guarantee can help and serve as a safety net. However, if the bank finds out that you actually do have a student loan debt, there is a chance that your right to this benefit will lapse.

Conclusion

So, it is clear that the bank will provide you a lower mortgage amount when you bear a student loan debt and you report this debt to the bank. However, a student loan debt built up during the new loan system has less disastrous consequences relative to a debt built up during the old loan system. My advice is therefore to keep this in mind and to include this fact in your choice whether and how much to borrow from the government to finance your studies. But of course, a mortgage is not the only relevant factor that plays a role in this choice. That is why I would like to refer you to this ‘Ome DUO‘ article, in which the choice to borrow from DUO is highlighted from different perspectives.