Tuition, rent and food are the top priorities when it comes to student finances, but this could change with the availability of buy-for-university mortgages, turning students into homeowners and landlords.
Bath Building Society has been offering a buy-for-university mortgage for the past ten years; last year they were joined in this niche sector by Loughborough Building Society.
Available to students over the age of 18 in higher education in England or Wales and with two years remaining on their course, is the opportunity to study for a qualification and buy a property at the same time to good to be true?
What is a buy-for-university mortgage?
A buy-for-uni mortgage enables students to borrow up to 100% of the value of a property, on the proviso their parents provide the security in cash or property equity. The student then buys the property and can let the spare rooms to tenants. On graduation the mortgage converts to a traditional mortgage, freeing the parents from financial liability and making the mortgage the sole responsibility of the graduate student.
Higher interest rates than traditional mortgages
The interest rates on a buy-for-uni mortgage are higher than on traditional home loans, but that doesn’t mean that it’s not a great opportunity. On graduation, the student can choose to sell the property or remortage onto a traditional mortgage deal with full access to the rates available to every mortgage borrower.
Bath Building Society’s rates start at 5.1% for a five-year discounted variable deal, plus fees and Loughborough Building Society’s rates start at a 4.99% discount variable rate for three or five years plus fees. Both providers will lend up to 100% loan to value with a maximum loan of £300,000.
What are the restrictions?
Both lenders stipulate that properties have to be located within 10 miles of the university, and cannot have more than four bedrooms if you borrow from Loughborough or three if you borrow with Bath. There are also restrictions on the types of property, e.g. neither will lend on ex Local Authority flats. However, there are no restrictions on who rents a room, meaning that reliance on student tenants is not necessary. Plus if you buy the property before the start of the academic year, you can let it on a short-term six month contract as long as the student is in residence at the start of the academic year.
What are the benefits?
Buy-for-uni mortgages provide greater flexibility than a traditional buy-to-let mortgage, since buy-to-let lenders don’t offer 100% mortgages, and parents have to give a cash deposit to secure a mortgage. The buy-for-uni mortgage is an opportunity for parents that might not have access to cash, but do have equity in their home, to help their child get on the property ladder.
The big bonus is that buying a property will save thousands in student rent. Letting out the spare rooms should generate enough of an income to cover the mortgage repayments and bills too. Plus for parents thinking about buying a property for their child to live in at university, a buy-for-uni mortgage avoids all Stamp Duty as the ‘child’ benefits from first-time buyer relief.
With a 2017 survey reporting that seven out of 10 landlords would not rent out to students, and recent news stating that accommodation is in such demand that students start to look as early as November for the next academic year, the option of sidestepping these issues will hold some appeal.
