Q I work as a junior doctor in the NHS and earn around £40,000 per year. After several years of working while living at home, I was able to save around £50,000. I presently have an £80,000 student debt with a 6.6 percent annual interest rate, costing me an extra £4,500 per year. I’m currently paying the bare minimum on my debt and am eager to pay it off as soon as possible.
I’d like to invest my funds in a buy-to-let property and pay off my college loans with the rental income. However, because this will be my first house, I’m concerned about how it would influence any future mortgages for my own home, and whether the hassle will be worth it in the long run. I would much appreciate your feedback.
AH
A Investing in a buy-to-let property appears to be the universal answer to any financial distress, based on your inquiry and those of numerous other readers, but it isn’t. Purchasing a buy-to-let home isn’t the best way to pay off your school loan. Because some of the rental income will be utilised to cover buy-to-let mortgage obligations, hoping that there would be enough left over to repay your school loans is wishful thinking.
That’s just one reason why a buy-to-let isn’t for you; you’re also right to be concerned about the impact it will have on your ability to buy a home in the future. Already owning a home would preclude you from taking advantage of first-time buyer benefits such as no stamp duty land tax (SDLT) on the first £300,000 of the value of a property costing less than £500,000 and access to the government’s help-to-buy scheme, which provides financial assistance to first-time buyers looking to purchase a new-build home.
The part of your query that perplexed me the most was why you are so eager to pay off your college debt. I can see why you’d want to if you’re taking out a commercial loan from a bank and the interest rate is really 6.6 percent (rather than £4,500).
However, if the £80,000 is the sum owed to the Student Loan Company, I think you would be ill-advised to pay it off early and Martin Lewis of MoneySavingExpert agrees with me.A Student Loan Company loan is not the same as a commercial loan. It does not appear on your credit report, the amount you repay is based on your earnings rather than the interest rate charged, and the loan is written off if you are still paying it off 30 years after you began making payments. However, if you have also been considering ways to boost your income and secure your financial future then property investment could still be an option for you.
