Buy-for-Uni Mortgages: Graduate with more than just a degree
Student rental accommodation is not renowned for luxury, generosity of space or value for money, so if you’re heading off to uni in the near future, it’s unsurprising that you’ve arrived here looking for an alternate option.
Given that the majority of people aged between 20 and 40 are struggling to get onto the property ladder in the UK due to unrelentingly high house prices and cautious lenders, it will likely come as a shock to many that there is a way for university students to obtain a deposit-free mortgage.
100% mortgages for university students
Believe it or not, this is actually something that’s possible. There is, of course, slightly more to the story.
Sometimes known as student mortgages, buy-for-uni mortgages are now offered by a number of building societies in the UK. They allow young people to purchase what is essentially a buy to let investment property, but with one major difference, they can also live in the property themselves.
This allows them to benefit from considerably cheaper, or potentially even free accommodation whilst they attend uni, as the mortgage payments are easily covered by letting out the remaining rooms to friends or fellow students. Repayments are interest-only for an initial 3-5 year period, in line with the buyer’s studies.
After graduation the property will need to be either converted to a standard repayment mortgage, or sold on. Either way, you’re likely to come out of university as a homeowner, or earning a profit from the sale – with the additional bonus that if you’ve continuously used the property as your primary residence, you won’t pay any capital gains tax.
How does this work?
There is one quite important requirement needed for this to happen. Unless you have considerable savings, you’ll probably need fairly affluent parents in order to benefit from this type of mortgage deal.
Whilst every lender offering a buy-for-uni mortgage is willing to extend their borrowing as far as 100% of the property’s purchase price, this level of lending is only available with cash or asset based security from their parents, similar to a guarantor mortgage.
Borrowing without a parental guarantor is possible, if you’re able to provide a 20% deposit and have a strong credit score, neither of which are incredibly common amongst 18 year olds.
Other criteria include:
- Applicants must be over 18, and
- Must have at least one or two years (depending on the lender) left on a higher education course
- The maximum you can borrow is £300-£400k, depending on the lender (assuming rental income will cover this size of loan)
- Some lenders require the property to be within a certain radius of the university (typically 10 miles)
- There may be a maximum occupancy clause (typically 3 people including the buyer)
What to do next
If this is something you think could benefit you (or your kids), it’s best to speak to a mortgage broker in the first instance, as they’ll be able to help you find the most appropriate buy-for-uni lender, and advise you whether this option promotes the best use of your money.
With rental prices continually rising in line with the hefty property purchase prices, at worst, you’ll benefit from suitable university digs at a much lower price than the national average. At best, this could be the key for many young people to getting an early step on the increasingly slippery rungs of the UK property ladder, or even their start as a portfolio landlord!