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Two birds, one stone

01st October 2019

Buy for uni mortgages work like guarantor mortgages and are essentially a way for guardians to help their child on to the property ladder while they’re at university. They allow students to borrow up to 100% of the value of a property so that they can purchase, live in and let out other rooms in the property to fellow students.

 

What are the rules?

Anyone over 18 who is in higher education can apply for the deal, as long as they have backing from family.

The student must:

  • Have at least one year left on their course
  • Use the mortgage to purchase a property that’s within 10 miles of their university, with a maximum of three occupants (the student and two flatmates) 
  • Use the mortgage to purchase a property that’s not ex-local authority owned, a studio flat without a separate bedroom, or flats in London

 

How do they work?

The parent or guardian acts as guarantor for the mortgage payments. A student can borrow up to 100% of the property’s value, but if they have a deposit of less than 20%, the parents will need to pay savings into a special account or use their property as collateral. 

 

Why do they exist?

Students spend thousands of pounds each year on student accommodation and maintenance loans barely cover the cost of living in some areas. This means that parents and guardians are increasingly called upon for financial support while their child is in further academic study. 

To make the expense more worthwhile, guardians may consider investing in a property for their child. But property investment carries high costs, particularly since the introduction of the stamp duty surcharge and the reduction of mortgage interest tax relief. 

Buy for uni mortgages offer parents with an alternative to investing themselves. The mortgage belongs to their child meaning that;

  • The child/student benefits from the first-time buyer stamp duty exemption
  • The child/student’s name is on the deeds so they won’t need to pay the 3% stamp duty surcharge for investors

The parents help support their child through university at the same time as setting them up for getting onto the property ladder later. In this way, buy for uni mortgages may be considered as killing two birds with one stone for guardians. 

 

What to consider

  • Interest – rates are higher than on traditional home loans.
  • Other costs – you’ll need funds to cover costs such as conveyancing fees, insurance and maintenance.
  • Responsibility – while renting you incur fees, but as a landlord you’ll be responsible for the property and your tenants.
  • Property value – the state of the property market is never certain but with a 100% interest only mortgage, even a small drop in property value could mean you end up in negative equity overall.
  • Risk – if anything goes wrong, any shortfall between the mortgage debt and what the property is sold for will be reclaimed from the capital put up by the parents.
  • Current costs – compare the mortgage payments with rent you would be paying instead.
  • Other options – is the potential for capital growth worth the risk, are you better saving the money for a deposit? It’s always best to seek financial advice to ensure you’re making the smartest move financially. Mortgage Advisors carry out and provide professional advice on this research for you.
  • Next steps – if you’re looking to get employment straight out of uni and to remain in the same area, you could be in a good position to remain owner of the property.

 

As soon as graduates begin paying off their loans, raising enough for a deposit on a first property can become a distant thought. Unless, that is, they’re homeowners already. Buy for uni mortgages are an opportunity to avoid investing ‘dead money’ into student rent and provide a means of getting your child on the property ladder that helps their friends as well as themselves. 

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