Buy-for-Uni Mortgages Explained

Student rental accommodation is not renowned for luxury, generosity of space or value for money, so if you’re heading off to uni shortly, it’s unsurprising that you’ve arrived here looking for an alternate option.

Given that most 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 university students can obtain a deposit-free mortgage.

This is a complex and specialist mortgage, so speaking to a broker is a good idea, as they will be able to help you navigate the process and advise on how to proceed.

100% mortgages for university students

Believe it or not, this is possible. There is, of course, slightly more to the story.

Sometimes known as student mortgages, buy-for-uni mortgages are now offered by several 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 while they attend university, as the mortgage payments are easily covered by renting out the remaining rooms to friends or fellow students. Per the buyer’s studies, repayments are interest-only for an initial 3-5-year period.

After graduation, the property must be converted to a standard repayment mortgage or sold. Either way, you’re likely to come out of university as a homeowner or earn 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?

One quite important requirement needs to be met for this to happen. Unless you have considerable savings, you’ll probably need affluent parents to benefit from this 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 can provide a 20% deposit and have a strong credit score, neither of which is incredibly common among 18-year-olds.

A grandparent or another family member, such as an aunt or uncle, can also be a guarantor for this type of mortgage.

Other criteria include:

• Applicants must be over 18
• 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 step on the increasingly slippery rungs of the UK property ladder early or even start as a portfolio landlord!