Amid the chaos currently afflicting the UK mortgage market a new survey has indicated that the problems of first time buyers are only going to get worse because of burgeoning student debt.

Lenders now routinely consider the existing debts of potential customers and this includes student loans. This will have a direct effect on whether the loan is granted and how much will be leant.

This became all the more relevant this week as the Government has announced a review of higher education funding which is likely to see university tuition fees rise steeply.

When applying for a mortgage, most lenders will put applicants’ financial details through an automated affordability calculator and individual lenders make the decision about whether student debts would be included in these calculations.

Since debt repayments directly affect people’s ability to pay back their mortgage, it is highly likely that such details will be included.

One analyst has, after extensive investigation, claimed that banks would advance £28,560 less on a mortgage to somebody with student debt than to somebody without.

This argument was brought into even sharper focus when Lord Browne’s report into university funding was published recently, which recommended that the current cap on fees charged to students be scrapped.

Although the specific details of Lord Browne’s plan were rejects, it is likely to lead to higher repayments for graduates, especially those who become high earners. This, in turn, will affect mortgage applications.

One of the main reasons for concern over this issue is that most students will not be aware that their loan will reduce the amount that they can borrow by such a large amount.

All of this cheery news comes at the same time as figures from the Council of Mortgage Lenders (CML) showed that first-time buyers’ share of the mortgage market was at its lowest for three years. This is expected to fall further, perhaps much further, in the coming months and years.

Many analysts believe we are witnessing the dust settling from a massive restructuring of the mortgage market and that it will never return to the way we knew before the crash. Buying a house will from now on be done later in life than before and require the financial help of entire families.

A few months ago the UK mortgage market looked battered, bruised, but not beaten. It seemed to have emerged from the dark days following the credit crunch and was looking forward to slow but steady growth. That picture looks entirely different today.

New figures from the Council of Mortgage Lenders (CML) show that the total UK lending fell to £12 billion in September. This is down 1 per cent on the August total and represents the lowest September total since 2000.

Adding to the gloomy news, analysts have claimed that lending is unlikely to pick up as we move towards the end of the year.

On the supply side, the UK credit system is still operating well below its optimal efficiency meaning lending companies simply have few funds to lend. On the demand side, the effects of the Government’s essential spending cuts are going to impact on consumer confidence and see a rise in unemployment.

On a slightly more cheery note, analysts have stated that the continued uncertainty surrounding the housing and credit markets in the UK mean it is unlikely that important government support for borrowers in trouble will be removed.

The news from the CML came days after the Halifax announced that last month saw the largest monthly fall of UK house prices since they began keeping records.

The mortgage market in the UK has been sluggish for a while now but it often is over the long summer months when so many potential buyers, sellers and solicitors are on holiday. What seems most ominous of all is that the usual post-summer increase in mortgage activity has failed to materialise.

The market has now reached the stage where potential buyers are being as cautious as the lenders because they are aware they may be able to buy their dream house considerably cheaper in a few months.

Analysts now fear that the housing market may be entering a downward spiral with suppressed supply and demand and continued difficulty for the small number of potential borrowers.

With discussions of the housing market it is very easy to forget that houses are not only investments but can be lived in as well. A very small number of people find themselves in the unfortunate situation of having to sell at a specific time when prices may be falling and there is specific help for those people. Everyone else is best advised to sit tight for now and watch how this plays out.