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Should I use a buy-to-let property to pay off my student loan?

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Q I am a junior doctor working in the NHS and earning about £40,000 a year. I have managed to save about £50,000 after several years of working while living at home. I currently have a student loan of about £80,000 at 6.6% interest a year, amounting to £4,500 extra a year. I am currently paying the minimum, and am keen to pay off the loan soon.

I would like to use my savings to buy a buy-to-let property and use the rental income to pay off my student loans. However, this will be my first property, and I am anxious about whether this will affect any future mortgages towards my own home, and whether it will even be worth the hassle in the long run. I would be very grateful for your opinion.

A Judging by your question – as well as those from several other readers – it seems that investing in a buy-to-let property has become the universal answer to any financial woe, but it’s not. Investing in a buy-to-let property certainly isn’t the answer to paying off your student loan. Some of the rental income will be used to cover the buy-to-let mortgage repayments so it’s wishful thinking to hope that there would be enough left over to repay your student loans as well.

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That’s just one reason why a buy-to-let is not for you, another is that you are right to be anxious about the effect it will have on buying a home in the future. Already having property would mean missing out on the concessions for first-time buyers such as no stamp duty land tax (SDLT) on the first £300,000 of the value of a property costing no more than £500,000 and access to the government’s help-to-buy scheme which gives financial help to first-time buyers wanting a new-build home.

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What really puzzled me about your question was why you are so keen to pay off your student loan. I can see why you would want to if it was a commercial loan from a bank, for example, and you really are being charged 6.6% (which is actually a cost of £5,280 a year rather than £4,500).

But if the £80,000 is the amount that’s outstanding at 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 loan from the Student Loan Company is not like commercial debt. It doesn’t appear on your credit file, the sum you repay is based on your earnings rather than on the interest rate charged and if you are still paying it off 30 years after you started making repayments, the loan is written off.