How Student Loans Affect Your Mortgage Approval in NZ

Taking on a mortgage with a student loan may sound like a setback, but you’re far from alone. New Zealanders collectively owe around $16 billion in student loans, with an average balance close to $24,000 per borrower. However, many first-home buyers carry this debt and still achieve their homeownership dreams. The key is understanding how student loan repayments factor into your mortgage affordability and what you can do to improve your chances.

In this guide, we’ll explain how student loan obligations are considered when you apply for a home loan, dispel some common misconceptions, and offer supportive tips for first-home buyers in NZ. With the right approach (and maybe a bit of expert first home buyer mortgage advice), having a student loan doesn’t have to stand between you and a place of your own.

How Student Loan Repayments Impact Mortgage Affordability

When banks assess your mortgage application, they look closely at your income and expenses to determine how much you can afford to borrow. Student loan repayments are treated as a fixed expense in these calculations, similar to other debts or financial commitments. This means your take-home pay is effectively lower from a lender’s perspective. In simple terms, money going towards your student loan each month is money that can’t go toward servicing a mortgage, so it reduces your borrowing power.

The good news is that having a student loan does not automatically disqualify you from getting a mortgage. Far from it. It’s both possible and common to buy a home while still paying off your student debt. Lenders understand that a large portion of young home buyers will have student loans. Their goal is simply to make sure your total debt (including the new mortgage, your student loan, and any other loans) stays within what your income can support. In fact, recent Reserve Bank rules set formal limits so that most borrowers’ total debts don’t exceed about 6 times their income (DTI ratio) and your student loan is counted in that total. Don’t be discouraged by this; it just means the bank is doing the sums to lend responsibly.

Student Loan Repayment Rules in 2025: Key Thresholds and Rates

To better understand the impact, let’s recap how student loan repayments work in 2025. In New Zealand, student loans are repaid as a percentage of your income over a certain threshold. Currently, you must start repaying your loan once you earn over $24,128 per year (before tax). That annual figure breaks down to about $464 per week. Any income above this threshold is docked at 12% for your student loan repayments.

Put simply, for every dollar you earn over $24,128 in a year, 12 cents goes toward your student loan. The repayment is usually deducted automatically from your paycheck (you’ll see “SL” on your tax code) so you don’t have to manually make payments. For example, a graduate earning a $60,000 salary would have roughly $4,300 per year directed to their student loan (12% of the portion above the threshold). That’s about $83 per week less in take-home pay available for other uses, including a mortgage.

A few important points to note about these loan repayments:

• They scale with your income: The 12% deduction means if you earn less, you pay less. If you were to lose income or hours, your student loan payments would drop accordingly. This provides some built-in relief and ensures you’re not over-committed beyond your earnings.
• No interest in NZ: As long as you’re living in New Zealand, your student loan is interest-free. This is important as it means your balance won’t grow over time, and every dollar you pay actually reduces what you owe. Lenders recognize that a student loan isn’t the same as a high-interest personal loan or credit card debt piling up; it’s a more benign form of debt.
• Automatic deductions: Because repayments come straight out of your salary/wages, there’s virtually no risk of defaulting or missing student loan payments if you’re employed. For the bank, this is actually reassuring as it’s one less bill that competes with your future mortgage payments, since it’s handled via PAYE. However, it does mean that a portion of your income is off-limits for other uses until the loan is cleared.

In summary, the student loan repayment threshold in 2025 is about $24k/year (or $464/week) and the repayment rate is 12% on income over that. Most full-time workers will exceed that threshold, meaning most graduates will be making student loan contributions, which lenders will factor in. Now let’s address some fears and misconceptions around how this debt might affect your mortgage approval.

Tips to Improve Your Borrowing Position (When You Have a Student Loan)

If you’re a first-home buyer juggling a student loan, here are some practical steps to strengthen your mortgage application:

• Tackle other debts first: Prioritise paying down higher-interest debts like credit cards, car loans, or hire purchases. Eliminating or reducing those can free up more of your income (and signal to the bank that you manage debt responsibly). In comparison, your student loan’s 12% repayment is usually less of a strain than a car loan at $150/week or a credit card that’s maxed out. Clearing high-interest debt will do more to improve your mortgage affordability.
• Get a mortgage pre-approval early: It’s a great idea to seek pre-approval before you start serious house-hunting. Especially when you know part of your income is tied up in student loan repayments. A pre-approval will tell you how much the bank is willing to lend you, given your current income, expenses, and debt. This helps set your house price budget realistically.
• Check your tax code: This is a small but crucial detail. Make sure your employer has you on the correct tax code (with the “SL” suffix to indicate you have a student loan). If you work multiple jobs or have recently changed jobs, an incorrect tax code could mean wrong student loan deductions, either too much or (worse) too little being taken out. It’s easy to verify through your MyIR account or with your payroll department.
• Consider voluntary loan payments (if needed): As discussed earlier, if your situation warrants it, you might choose to make extra student loan payments or clear the balance faster. Eliminating the loan will remove that 12% deduction from your pay, instantly boosting your usable income. This strategy makes the most sense if a relatively small loan balance is holding you back. Just be careful not to deplete your house deposit to do this, since there’s little point paying off a $5,000 student loan only to find yourself $5,000 short on the deposit for a house.

Talk to a mortgage advisor: Navigating the mortgage process with a student loan can be much smoother with expert help. A good mortgage broker can calculate exactly how your student loan is affecting your borrowing capacity and suggest the best path forward. They might find lenders with more flexible criteria or help you structure your budget to meet the requirements. Don’t hesitate to seek professional guidance, as an adviser offering personalised first home buyer mortgage advice can create a game plan tailored to your goals. They’ll ensure you’re taking advantage of every option (such as building or renovating loan options).