I would like some advice regarding my student loan. I only went to university for one year, so don’t have as much debt as if I had completed the full course.
I went to university between 2017 and 2018 which means that I am on the student repayment plan type 2. The interest is currently 7.7 per cent.
I borrowed £9,000 for tuition and my maintenance loan was around £3,000, but after interest my balance is now £17,792.89. Last year, £1108.02 interest was added.
I started my first job with a wage over the repayment threshold in July 2023 and have been paying off £9 per month, the automatically deducted amount, since then.
I’ve also been saving for many years and have finally got enough for a deposit on my first home. However, now I am debating whether this is the best use of my money.
> Read: Why financial experts say you should NOT pay off a big student loan
I have come up with four options. Which is the best?
1) Put off buying a house for now and use my savings to pay off my student loan in full
2) Put off buying a house and pay a lump sum amount into my student loan
3) Continue to just pay £9 per month and buy a home
4) Overpay where I can, as opposed to saving the money
> Read: How long will it take you to repay your student loan on your current salary?
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Ed Magnus of This is Money replies: Student loan repayments are a problem shared by many young people these days.
The problem was exacerbated in 2012 when fees jumped from roughly £3,000 to £9,000 per academic year.
How much you repay depends on your income before tax and what loan plan you’re on. You’ll then repay a percentage of your income over a set income ‘threshold.’
Those on plan 2 like you, who went to university between 1 September 2012 and 31 July 2023, start to repay their loan once their income is more than £27,295 a year.
All undergraduates, regardless of the plan they’re on, pay 9 per cent of their income over the threshold.
The level of interest has been based on the Retail Price Index rate of inflation (RPI) rather than the Consumer Price Index (CPI), which is more commonly used.
Fortunately, when RPI jumped to 13.5 per cent in March 2023, the Government introduced a cap of 7.6 per cent for all loans. However, that’s a very high interest rate – and certainly more than you can currently earn from a savings account.
It is understandable that to avoid further interest accumulating you would ideally want to pay it off sooner.
But if that means delaying buying your first home, it rather complicates matters.
While the interest may accumulate on the student loan, house prices also tend to rise over the long term, which means that delaying your home buying plans could also end up costing you more in the long run.
For expert financial advice, we spoke to Holly Tomlinson, financial planner at the wealth manager, Quilter and Jack Munday, partner and chartered financial planner at the wealth manager, Saltus.
What the experts say…
Holly Tomlinson replies: Although this query is specifically about a student loan, it represents one of the most frequently asked financial questions: should you clear a debt or buy a house?
Many people face the predicament of not being able to save for a home, without throwing in the added burden of increasing student loan costs.
As a general rule of thumb, we are taught as financial advisers to look at a clients’ needs in an order of priorities, with debts being the first need to address in an ideal world.
In reality many people see a property as their most important financial desire. Not only does it get you on the escalating property ladder, but also eliminates the prospect of paying rent, which many see as money down the drain.
It is important to remember that a student loan it is not like other types of debt.
For example, a student loan does not appear on your credit score – though it can impact mortgage affordability.
Similarly, depending on what plan you are on the debt will be written off after between 25 and 40 years.
When deciding which way to turn, looking specifically at the options you have presented I would consider the following:
1) Put off buying a house and pay off the student loan in full: This is a fantastic option to stop paying interest on a debt that isn’t decreasing.
Especially as the interest rate on the loan is higher than the current average percentage growth of general cash savings accounts and the percentage growth on property in the last 12 months.
2) Put off buying a house and pay off a lump sum of the loan: If you have the funds to clear this student loan in full then this is a sensible option as any money sat in a cash savings account is unlikely to make enough interest to compensate for the 7 per cent interest being applied to the loan.
However, if a partial payment can only be made this would still be sensible considering the same theory.
3) Continue to just pay £9 per month – or overpay where you can – and buy a home: Applying the same theory as discussed before, clearing the student loan as soon as possible would benefit you more in the long run, even though this might mean putting dreams of buying a house on ice for the time being.
A caveat which is sensible to bear in mind is whether you would be paying rent instead of a mortgage if you didn’t buy a property and cleared the loan.
If so, it’s important to consider how much the rent would be and the ‘wasted’ money that would apply in this instance.
It is then possible to work out what would look better on a monthly basis – renting or owning – and if purchasing the house as a priority and clearing the student loan second would work out better from a financial viewpoint.
Jack Munday replies: The most interesting thing about this scenario is that it highlights the importance of behaviours and emotion when it comes to identifying your own objectives and drivers.
In this situation, there is a crossroads of paying off student debt or taking on mortgage debt.
Both are forms of debt, but the vital difference is what is perceived as ‘good debt’ versus what is seen as ‘bad debt.’
The concept of student loans being a ‘good debt’ is typically because they are designed to allow a platform to improve job prospects and earnings.
There is also a common belief that student loans do not affect your borrowing ability, however, this is a bit of a red herring.
It is true that student loans do not show on a credit score, unless you have missed payments, and this is one of the biggest factors with a mortgage.
However, the repayments will be factored into a mortgage lender’s affordability calculations, and at the end of the day, almost all financial objectives and decisions boil down to affordability.
We do not yet know enough about the situation to consider the best outcome, but it’s important to consider:
The reason these factors are important is that mortgage debt is static, while student debt is on a set payment schedule.
Repayment plan 2 means you do not pay until you earn over £27,295 per annum. After that, 9 per cent of your wage above this level will be deducted – sometimes referred to as the ‘uni tax’.
Another thing to consider is whether the individual might take a career break in future. If they did, the student loan repayments would stop but the mortgage repayments would continue.
Repaying the interest on any loan will always ensure the final balance is cleared faster. However, the mortgage versus student loan debate will always be based on the longer term objectives of the individual and how they feel about debt.
They should speak to a professional to discuss this and get specific advice for their circumstances.
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Selling a property worth around £300,000 will pay the costs of living in a care home for seven years, new research reveals.
The cost of care in a residential home has risen by about 20 per cent to £816 a week or around £42,400 a year since 2020-2021.
That outstrips the rise in average house prices in England, which have increased 12 per cent in the same period, potentially reducing the amount of cash a homeowner could raise if they need to move to a care home.
Care costs have risen faster than house prices in all English regions during this time, according to the study by financial services firm Just Group.
‘The home is often the most valuable asset which, under current rules, makes it a major source of finance for people funding their own care,’ says director Stephen Lowe.
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Some 40 per cent of homeowners aged 45-plus surveyed for Just’s latest annual care report said they would sell their homes to pay for care, ahead of any other funding option such as pensions, investments or the state.
At present, reforms to how people will have to pay for care are on hold after the Government delayed the launch of a lifetime care spending cap until autumn 2025, after the next election.
The plan would introduce an £86,000 ceiling on how much an individual has to spend on care – but based on some, not all, of their private contributions rather than on total costs – and raise the threshold to start receiving support from £23,250 to £100,000.
‘The “house price to care cost” ratio is a useful measure because currently about half of care home residents pay all their own fees and a significant amount of funding is sourced from people selling their homes,’ says Lowe.
But regional differences in average house prices and care costs create some huge disparities in how far property wealth will stretch if you need care.
Average care costs are lowest in north east England at £35,672 a year, but house prices at £157,557 would cover about four and a half years of care.
Care fees in London are the second highest in the country after the south east at £46,852 a year, but much higher than average house prices of £508,037 would fund nearly 11 years in a residential home.
However, Londoners’ ability to pay for care is being squeezed because from 2020-2021 average house prices have risen 3 per cent but residential home fees have jumped 17 per cent.
Lowe says of the data in the table above: ‘These are optimistic figures because in the real-world self-funders meeting all their own costs pay higher fees than those receiving some or all council funding, while the costs would be higher still if specialist nursing care were needed.
‘Under the current means-tested social care system, those with assets of more than £23,250 have to pay for their own care and this will include their residence unless it is still being lived in by someone such as a spouse.
‘Reforms that might have helped to protect the value of the home have been delayed and may never be implemented.
‘The care sector is facing huge funding pressures and, as we head towards a general election, voters should look at what answers the politicians are suggesting.’
The map below shows the years of nursing care that would be funded, as well as the cost of residential care, if you sold the average-priced house in a region of England.
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Senior doctors in England have voted to accept an improved government pay deal, bringing to an end the year-long dispute which had led to strike action.
The British Medical Association (BMA), a trade union which has been representing the consultants, put the offer on pay and conditions to its members, with 83% voting in favour.
The pay deal includes changes to the review body on doctors’ and dentists’ remuneration (DDRB) and a 2.85% (£3,000) uplift for those who have been senior doctors for four to seven years, said the BMA.
The offer is in addition to the 6% awarded during the DDRB process last summer.
Strike action over the last two years has heaped more pressure on the NHS, where more than seven million patients remain on waiting lists for hospital treatment, leading to thousands of cancelled appointments and procedures.
It has also piled pressure on Prime Minister Rishi Sunak ahead of an expected election later this year, as polls suggest the Tory party is trailing heavily behind Labour.
He hailed the deal as “excellent news” for patients after admitting in February he had failed to cut NHS waiting lists – a key government pledge.
“The end of consultant strike action in the NHS is excellent news for patients. It will mean we can continue making progress towards our goal of cutting the waiting lists, which have now fallen for the fourth month in a row,” he said.
“Consultants perform a vital role at the heart of the NHS – I’m pleased they’ve accepted this deal, which is fair for them and fair for the taxpayer.”
While NHS nurses ended strike action last year following a pay deal, a long-running pay dispute with junior doctors, who staged a five-day strike in February, remains ongoing.
‘Without valuing doctors, we lose them’
Dr Vishal Sharma, who chairs the BMA consultants committee, said “at the heart of this dispute was our concern for patients and the future sustainability of the NHS”.
He described the consultants’ strike action as “unprecedented” following “years of repeated real-term pay cuts”.
Dr Sharma said “it’s now imperative that the DDRB utilises its independence to restore doctors’ pay and prevent any further disputes from arising”.
“We’ve reached this point not just through our tough negotiations with the government, but thanks to the resolve of consultants, who took the difficult decision to strike, and did so safely and effectively, on multiple occasions, sending a clear message that they would not back down,” he said.
He added: “Without valuing doctors, we lose them. Without doctors, we have no NHS and patients suffer.”
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Health and Social Care Secretary Victoria Atkins said the government’s offer was “fair and reasonable” and the deal eliminated the threat of further strikes.
She added: “Consultants will now be able to focus on providing the highest quality care for patients and we can consolidate our progress on waiting lists – which have fallen for the past four months.
“This deal directly addresses gender pay issues in the NHS and enhances consultants’ parental leave options – representing a fair deal for consultants, patients, and taxpayers.”
By Shaun Wooller Health Editor For The Daily Mail
11:18 05 Apr 2024, updated 20:44 05 Apr 2024
Consultants have agreed to end strikes after accepting a bumper new NHS pay deal that will see some earn almost £20,000 more a year.
The medics voted 83 per cent in favour of the offer, which takes their salaries to between £99,532 and £131,964, excluding private work.
The uplift is worth an extra 6 per cent to 19.6 per cent, depending on experience.
Health leaders said NHS managers will ‘breathe a sigh of relief’ to know that there will be no further consultant strikes ‘for the foreseeable future’.
And Prime Minister Rishi Sunak said the result is ‘excellent news’ for patients, as it will make it easier to cut waiting lists.
The British Medical Assocation, a doctors’ union, said the proposal improves on one rejected earlier this year as it includes additional changes the profession’s pay review body and a larger pay rise for more doctors.
Senior medics in England have staged four rounds of strikes across nine days, hampering efforts to tackle the NHS waiting list.
Junior doctors, who have also taken industrial action, remain in dispute with the government, as do specialty and specialist (SAS) doctors.
The BMA said agreed changes to the pay review body (DDRB) represents ‘significant progress’ in returning it to its ‘original purpose and independence’.
From next year, there will be changes to the way it will appoint members, and the Government will no longer be able to constrain its remit with reference to inflation targets and economic evidence.
The BMA added: ‘These changes mean that the DDRB can no longer ignore the historical losses that doctors have suffered or the fact that countries abroad are competing for UK doctors with the offer of significantly higher salaries.
‘The offer also improves on the previous proposal to reform the consultant pay scale.’
Members of the Hospital Consultants and Specialists Association (HCSA) also voted – by 83 per cent – to accept the offer.
President Dr Naru Narayanan said: ‘Our members’ resilience and courage has seen them secure long overdue improvements to pay.
‘This is the best deal available right now and a step firmly in the right direction.
‘We will continue to ensure that consultants’ enormous contribution to the NHS is properly recognised.
‘This will include holding the Government to account on the implementation of reforms to the pay review body.
‘It is now time for the Government to step up and make our junior and SAS doctor colleagues fair pay offers.’
Matthew Taylor, chief executive of the NHS Confederation, which represents healthcare organisations, urged junior doctors and ministers to also reach a settlement.
He added: ‘NHS leaders will breathe a sigh of relief to know that there will be no further damaging industrial action from NHS consultants for the foreseeable future.
‘The health service relies heavily on its consultant workforce and these professionals have helped to keep the most life-critical services afloat including over the difficult winter period and the recent junior doctors’ walkouts.
‘But the potential for further junior doctor strikes looms large, which could lead to more operations and appointments being cancelled and place more pressure on already stretched services.
‘While NHS organisations have worked tirelessly to fill rota gaps and keep patients safe, more than 1.4million appointments and operations have been cancelled over the last year of industrial action, with even more patients joining waiting lists.
‘This agreement between the BMA consultant committee and Government shows that a sensible middle ground can be reached through negotiations.’
Health and Social Care Secretary Victoria Atkins said: ‘I hugely value the work of NHS consultants and I am pleased that, after weeks of negotiations, they have accepted this fair and reasonable offer, putting an end to the threat of further strike action.’
Sir Julian Hartley, chief executive of NHS Providers, described the ballot result as ‘welcome news for trust leaders’.
However, he added: ‘We aren’t out of the woods yet, however, with junior doctors having voted for more strikes and industrial action while other specialty and specialist doctors have rejected a Government pay offer.
‘Hugely disruptive and costly strikes in the NHS can’t become ‘business as usual’.
‘Remaining concerns must be resolved. Industrial action takes a toll on patients, staff and stretched services.
‘We urge politicians and unions to find a way to end all disputes.’
- EXCLUSIVE: Bailey family have to sell the seaside house to cover £3m tax bill
- Home was first bought by their father Oswald Bailey for £7,000 back in 1945
- Family said sale as ‘very sad’ and believe a buyer will probably demolish home
A family has told how they will be forced to sell an idyllic seaside house in the millionaire’s playground of Sandbanks, Dorset – after being hit with a £3million inheritance tax bill.
The property on Panorama Road on the peninsula overlooking Poole Harbour has been in the Bailey family for nearly 80 years, but will almost certainly now be demolished to make way for a modern house.
It was originally built for a local doctor in 1918 and then bought by Oswald Bailey, a British camping entrepreneur in 1945, paying £7,000 for it. Now it is on the market for £9 million.
At the time Sandbanks was a sandy strip with ramshackle, mostly wooden, houses and a world away from the exclusive property hotspot it is today.
Today the resort has become Britain’s version of Miami Beach, and the 105-year-old house has risen in value by 1,200 times more than what was paid for it.
Mr Bailey left the property to son, Frank, in 1949. He and his wife Lalage raised their four children – Stephen, Hilary, Alison and Nicola – there.
For as long as they had it Frank and Lalage had no intention of selling up speculative property developers.
Frank, a former managing director of Oswald Bailey, died in 2005 while Lalage passed away peacefully in a room facing the sea six years ago.
The four siblings then naturally inherited the old-fashioned, three storey property.
But reluctantly they now have no choice but to sell it after being left with a seven-figure inheritance tax bill.
Under inheritance tax rules, an estate which has passed to children is exempt from tax for the first £500,000, but everything above that is usually subject to a 40 per cent levy, which if HMRC agree with the £9m valuation, would mean a bill of more than £3 million for the family.
The family could have minimised their inheritance tax bill if their parents had passed on their wealth before they had passed away, so that it was exempt using the seven-year rule.
It is currently on the market for the first time in eight decades and the family accept that whoever does buy it will most likely demolish it and build an ultra-modern, luxury mansion in its place.
Stephen, 68, said: ‘We have never had any money out of the house because the home has always been the important thing, not the money. But inheritance tax is driving the sale now.
‘It is very sad but we have accepted it now. It will obviously be a wrench for all of us, especially my two sisters who live there.
‘We realise that there is a very good chance the house will be demolished. I’m not crying “poor little me” by any means, it’s just one of those things.
‘I am philosophical about what will happen to it but one of my sisters is opposed to it being knocked down and rebuilt.’
Stephen, who is still a director of the family firm Outdoorgear UK Ltd, now part of the Millets empire, recalled the happy times spent at the house.
‘We all grew up there, it was the most wonderful place to grow up in.
‘The sea was at the bottom of our garden and we used to row across to Brownsea Island, about a quarter of a mile away, to have adventures there.
‘When they were a bit older, my sisters swam there.
‘My father had a 45ft motor boat and moored it in the harbour and he would just take us off to France in it.
‘We knew Sandbanks was getting expensive when the house next door sold over 20 years ago for over £1m. Within two years it sold again for £3m.’
The house in its current form has a kitchen/breakfast room, dining room, sitting room and study on the ground floor, four bedrooms with two bathrooms and a separate kitchen on the first floor and an apartment consisting of two more bedrooms, a bathroom and kitchen.
The property is screened by trees from the main road at the front. At the back there is a split level large garden, with a lawn and terrace area and steps leading down to the waterside lawn. It also has its own private jetty jutting out into Poole Harbour.
The family is hiring an architect and will apply for outline planning permission for demolition of the house and replacement with a more modern living space.
Mr Bailey said he had been surprised to see MailOnline’s exclusive story about head-hunting tycoon Tom Glanfield, who bought a £13.5 million seafront chalet bungalow, only to have his application to demolish it and build an eco-home refused by the local council.
Mr Bailey said: ‘That’s a scandal. I thought that was so sad because it seemed to be a very eco-friendly place and some of the place that are built around here are really ugly white boxes.
‘Who’s got their priorities wrong here when you have a chap who was keeping most of the trees, showing respect to wildlife and putting a green roof on the house and he gets refused?
‘It looked like a lovely house that was going to replace what’s there at the moment, whereas there are some people putting up these ugly square boxes.’
Once built a new modern mansion on the same plot is likely to be worth about £13m.
My husband and I are looking to buy a new home, but we don’t want to sell our current house now, as we think we can hold on to it until a better time to sell.
We also want to avoid the home moving stress that comes with selling and buying at the same time.
Luckily we don’t need to sell to buy and plan to sell our current home in the next year or two, hopefully when the property market picks up again. In the meantime, we will rent out the property we buy now for a year or two and then move in when we sell our current home.
Does this mean we will have to pay the extra stamp duty surcharge or can we claim this back as it is our main home? If so, will it be easy to reclaim and what steps will we have to follow to ensure we are not turned down as that could cost us dearly.
Ed Magnus of This is Money replies: Although this is a nice problem to have, you’re sensible to be considering the potential stamp duty ramifications.
The rates of stamp duty are set at a percentage of the purchase price, which varies depending on the value of the property you are buying.
For any typical home mover, who isn’t a first-time buyer, they don’t pay any stamp duty up to the value of £250,000.
This will remain the case until 31 March 2025, when the nil rate band will be reduced back to £125,000 for a typical home mover.
You can check how much you would pay to move home with our stamp duty calculator.
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Under the current stamp duty system, the portion of a property’s purchase price between £250,001 and £925,000 sees the tax charged at 5 per cent, between £925,001 and £1.5 million it rises to 10 per cent, and above £1.5 million it is charged at 12 per cent of the purchase price.
However, those purchasing an additional home on top of their main residence are required to pay an extra 3 per cent surcharge on top.
This covers buy-to-lets and also second homes and any other situation where the new property you are buying is not replacing a main residence that has already been sold.
The complication with your situation is that you think your main residence won’t be sold for another year or two and the new property won’t be your main residence to begin with.
However, the government has rules on this exact situation.
If you have not sold your main residence on the day you complete your new purchase you’ll have to pay higher rates. This is because you own two properties.
However, you can apply for a stamp duty refund if you sell your previous main home within 36 months, so it will be very important to bear this timeframe in mind.
If it takes longer than 36 months to sell your previous main home there is an exceptional circumstances scenario where you may still be able to claim the money back, you can find the stamp duty repayment rules at gov.uk.
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How much stamp duty could you claim back?
It will be important to reclaim the surcharge, as it can add up to a significant amount depending on the purchase price of the property you are intending to buy.
A £300,000 property for example without the 3 per cent surcharge will cost £2,500 in stamp duty. However, with the surcharge included, it will cost you £11,500 in tax.
A £500,000 property would cost £12,500 without the surcharge included. However with it included, the tax will set you back £27,500.
If you’re able to stomach the initial surcharge, your plan may work, given you will be able to claim it back at a later date. However, it will involve tying up money for a substantial amount of time and you will need to leave plenty of time to sell.
It may prove a way of avoiding the stresses and potential disappointment that can unfold when moving home.
It often takes months for a property sale to complete having gone under offer. Add that to a potentially long property chain of equally anxious buyers and sellers, and there is also a good chance of any deal collapsing.
Many property transactions are dependent on a chain of buyers and sellers, all relying on each other to ensure they can complete on their own purchase.
If any transaction in the chain is delayed or collapses, everyone in the chain is impacted.
We spoke to Tim Walford-Fitzgerald, a private client partner at accountancy firm HW Fisher for their tax advice and Mark Harris, chief executive of mortgage broker SPF Private Clients, on the assumption that the reader will be requiring a mortgage to fund their purchase.
What is the tax advice here?
Tim Walford-Fitzgerald replies: You’ll usually have to pay the 3 per cent surcharge on top of Stamp Duty Land Tax (SDLT) rates if buying a new residential property means that you’ll own more than one.
In your case you’ll be purchasing an additional property, and so you’ll have to pay this surcharge.
Be sure to factor this into your purchase price on completion. This surcharge applies even to the first £250,000 of the purchase price, that would normally be free from SDLT until 31 March 2025.
The good news is that as you intend the new property to become your main home, albeit not immediately, you may be able to claim a refund of that 3 per cent if you sell your existing home, and the new property becomes your home within three years of buying it.
You will have to claim the refund within 12 months of selling your current home. The form is called SDLT16 and it can be completed on-line.
You will need the details from the two transactions in order to work through the steps.
These will include the addresses and title numbers of both properties, the dates of the transactions, the unique SDLT transaction reference for the purchase of your new property and a calculation of the tax you are reclaiming.
However, if things don’t turn out the way you hope and you end up staying where you are, or if you decide to rent out your current home instead of selling it, you won’t be able to reclaim the 3 per cent surcharge.
You will also need to watch out for capital gains tax if this is not to be your final home.
The year or so renting out the property while the market improves may impact on your CGT exemption if you were to move again in the future.
This might be avoided if you were to only rent it on a short term basis, for example a holiday let style, rather than allowing someone to make it their own residents
Could you get a mortgage on another home?
Mark Harris replies: If you need a mortgage to fund the purchase, there are a few things you need to consider.
Firstly, is there a mortgage on your current property that could be moved over to the new property?
You will need to check whether your lender will allow you to port it without incurring a penalty or whether there are any consent-to-let issues.
If a mortgage is required to purchase the new property, the usual income, affordability constraints and background commitments come into play.
The lender will also want to know where the deposit money is coming from. If it is raised against the existing property to be let via a let to buy, then if you are looking to sell in the short or medium term, consideration will need to be given to the mortgage type taken.
It is also worth considering a possible fall in value if you sell your existing home at a later date, although you mention that you are holding onto it until the market picks up.
However, nobody knows when this might be and you may need to sell sooner than you would like for whatever reason, which could result in a loss.
Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.