Student mortgages can be a sensible option
Posted on 6th April 2021
Our CEO, Kevin Gray, talks about Buy for University mortgages and how parents can help their children enjoy the security of owning their own home and rent rooms to contribute to the mortgage while they study:
As the parent of two children of university age, I know only too well the cost of student accommodation in campus towns like Bath. The reality is, that the student loans system is not sufficient to support our young people while they are at college. The high cost of renting means that in order to survive, students need to either get a job or receive financial support from their parents, or both. Over a typical three-year course, a parent could easily expect to have to support each student to the tune of between £15k and £20k just to put a roof over their head. That is serious money, all of which goes to landlords and is thus ‘dead money’.
Is there a way of providing accommodation for students in University towns that also gives students some longer-term benefits from their parental support?
The answer is yes…..the Bath Building Society ‘Buy for Uni’ student mortgage. This product allows a student to borrow up to 100% of a property’s value on an interest-only basis. This might seem a little odd, or even at little mad, bearing in mind that students do not have any substantial earned income to support a mortgage. This is where the so called ‘Bank of Mum and Dad’ comes in. Buy For University mortgages are granted on a ‘joint borrower/sole proprietor’ basis where a parent of a student and the student themselves borrow the mortgage monies together but where the property legally remains solely in the name of the student. By structuring the purchase this way, parental income can be used to support the affordability test for a Buy For University loan. Furthermore, any potential income that is available by renting out spare bedrooms can also be used to support the mortgage. This is tax efficient as the government’s Rent a Room Scheme permits £7,500 of tax-free income to be earned from letting out spare, furnished accommodation in a person’s home. The Society also requires a collateral charge against the parental home to reduce the effective loan-to-value to 80%. Alternatively, cash can also be provided as collateral.
Bath Building Society has been advancing Buy For University mortgages for over 12 years now and it is recognised as being an expert in this field. At the end of a student’s formal studies they have normally accrued some equity in the property due to house price increases. Ex-students typically then choose one of a number of future paths with regards to their property. They often transfer onto a residential mortgage rate and live in the property. Another popular option is to transfer onto a Buy-to-Let mortgage and let the property out. Alternatively, they often sell the property and move on somewhere else.
The Buy For Uni mortgage is an excellent way for parents to help their offspring get onto the housing ladder. If you’re interested to find out more contact our mortgage team for a chat.