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100% mortgages to students are maybe not such a daft idea
At the time of writing this article, my youngest daughter had just received her A Level results. The good news is that she achieved the grades required to get her into University College London to study Applied Medical Science. As a proud father, I’m delighted at her success. Well done to her and indeed to all others who are off to Uni this Autumn.
Having guaranteed her place at college, my daughter’s attention has now shifted to securing suitable accommodation and sorting out finance for her course fees and maintenance. The workings of the student loan system mean that students cannot borrow anywhere near enough to pay the increasingly high rents on their accommodation, buy study materials, and adequately feed and clothe themselves. To make matters worse, the high demands of modern college courses mean that there is limited time available to count on part time work to plug the financial gap. The only real answer is parental contributions. With myself now having two children at college at the same time, I suspect that the ‘Bank of Dad’ is now going to have to dig deep over the next three years. Most parental contributions go to pay for the high cost of students’ rents. This is especially true in the big university cities such as London, Edinburgh, Bath, Bristol, Oxford and Cambridge where property prices (and associated rental costs) are high. Material levels of parental contributions made over several years are therefore directly benefitting universities and private landlords.
Bath Building Society has recognised that there is an alternative way that parents can finance their children’s accommodation whilst they are at university and they have pioneered a successful ‘Buy For Uni’ mortgage product. The Society is in fact one of the leading lenders in the field of mortgages to students. The idea of lending to students who have no deposit and no income might at first sound a bit crackers but let me try and explain how the product works. An interest only mortgage is granted to a student to buy a suitable property in a university town. The student is the legal owner of the property and no deposit is required as the loan can be up to 100% of the property value. The parents of the student provide a collateral charge against their own home equivalent to 25% of the loan to their child. The student rents out any spare space in the property to others and this provides an income stream that supports the mortgage interest payments. The parents of the student also provide a loan guarantee to cover income shortfalls. This arrangement has many benefits. The transaction can be done without a cash deposit and as the student is the registered owner, additional stamp duty does not apply unlike if parents buy a house in their own names for their child. An element of income from renting out spare room space in the student’s home is non-taxable and any excess income is generally covered by the student’s personal tax allowance. Any increase in the property value over the term of the student’s university course directly benefits the student.
Over the course of ten years or more, the Society’s Buy For Uni product has allowed students all over England and Wales to purchase homes of their own whilst at college. In the Society’s experience, students tend to stay on in their homes or rent their properties out on a buy-to-let basis once college courses have completed. The minority choose to sell up and move on elsewhere. The Buy For Uni product is a fabulous way in which parents can help their children to get their feet onto the property ladder. In 2020, the Society will also be lending in Scotland so any students going to Scottish universities will also be able to benefit from the Buy For Uni product.
If you have children going to college this Autumn or next year, maybe you should consider whether the Society’s Buy For Uni product is suitable for you and them. I will be taking a serious look. The Society’s Mortgage Department can be contacted on 01225 475737.
I wish your children all the very best with their future studies and careers.
Kevin Gray, Chief Executive