Mortgage adviser Ray Boulger answers your questions

Ever wondered how student loans affect mortgages, or if there are there tax benefits to buy to let?

Drawing on years of experience, industry award-winning mortgage expert Ray Boulger - of mortgage broker John Charcol (www.charcolonline.co.uk) - answers your questions.

Natasha - from London asks:
When applying for a mortgage, do either of the two types of student loans impact the decision at all? The type of student loan post 1998 seems unlikely to affect a mortgage application as it is deducted via the income tax system, however pre 1998 loans are paid back in the same style as a mainstream loan via direct debit. Therefore, would a broker need to take this into consideration during the application process, or is this information not necessary?

If you are lucky enough to work for an employer who will deduct your payment via your PAYE they may seem tax free but they actually do calculate the monthly payments after tax and take the whole amount. If the lender works on 'income multiples' they will ask for your gross salary and any commitments that you have, in which case you should state the monthly payment that comes out of your income and this is detailed on your payslip. If the lender asks for your net income after tax because they are going to do an 'affordability' calculation, then use the figure on your payslip and just be careful not to then include the loan a second time when they ask for other monthly commitments later; you should enter £0.

Andrew Johnson from Peter Lee asks:
When getting a buy-to-let mortgage I was told that it was better to get an interest only rather than repayment mortgage, why?

This is a question for a tax advisor but my understanding is that you have to pay income tax on the profit you make between the rent and the interest payment. Therefore it is in your interest to keep the mortgage payments as high as possible so your profit is as low as possible. If you take a repayment mortgage you would be chipping this debt down and losing your tax advantage.

Andrew continues:
If you did a repayment mortgage on a buy-to-let are you technically supposed to be taxed on the repayment portion of the payments? If not, is that not a great loop-hole? i.e. make as much repayment as possible to gain capital value in the property without any tax issues?

Don't forget that you have already been taxed when you got paid by your employer. You can't be taxed on a payment out, only on a profit received. The only way of using a buy-to-let as a tax advantage is to structure the loan so as not to get taxed on any more profit, as described above. If you have money available to make capital repayments, you should make as much repayment as possible to gain capital value in your main residential property, where you get no prizes for a high debt.


If you have a question for Ray, go to www.myfinances.co.uk/askthemortgageexpert

For more information on the issues discussed here, go to www.charcolonline.co.uk or call 0800 358 5560.

Charcol Limited is authorised and regulated by the Financial Services Authority (FSA registration number 427339). The FSA does not regulate credit cards, personal loans or some investment mortgage contracts. Some Buy To Let mortgages are regulated by the Consumer Credit Act (CCA). XXX