Student loan repayments are another major factor stopping those in their 20s and 30s from buying houses - and it's a growing problemare now paying back £2,000 or more a year towards their student loan – a figure that has nearly doubled in the past five years and is preventing graduates from getting on to the property ladder.
So why are more facing an effective higher tax of thousands of pounds a year, and what effect is it having on their chances of buying a home?In the tax year ending April 2020, just 377,861 graduates were paying back £2,000 a year towards their student loans. Only 22,323 were repaying more than £5,000.In the most recent tax year, 725,363 repaid more than £2,000 and 66,477 of those were repaying more than £5,000.
These students were the first to face £9,000 a year tuition fees. They also face high interest rates compared to some other types of students – up to 8 per cent – meaning that unlike those who started university before them are far less likely to ever repay their loans in full, unless they are on incredibly high incomes.
But in 2022, it chose to freeze this threshold at £27,295, despite high inflation and earnings growth. “There are multiple factors at play that are driving the rise in the figures. One is more and more cohorts of graduates coming into the labour market and growing their salaries, so they end up paying large amounts, the second is the threshold at which people pay back their loans has been frozen. This is a big deal – it’s similar to the tax threshold freezes which result in what some call stealth tax rises.
Loan repayments hinder graduates by taking away what would otherwise by disposable income for them to save for house deposits. She thinks the sort of house she and her husband would want to buy in her area would be around £300,000 as a minimum. If her student loan payments of £3,000 per year were removed, she could save for a 5 per cent deposit within five years, or a 10 per cent deposit within ten years.When she left university her loan balance was £17,737 but it’s only decreased by around £5,000 in the past 11 years, despite her starting repayments back in 2016.
She says she doesn’t think university was worth it “in the slightest” and would encourage young people to look at internships and apprenticeships instead.