University is one of the pivotal times in life. Your children have made it through the tantrums and tears and are starting to navigate adulthood alone. Over the next few years they will graduate with:
- A degree
- Some great memories
- A mountain of debt
They could also leave university as a homeowner who has been collecting rent throughout their education to offset some of the expense, with a Buy for Uni student mortgage.
Buy for Uni is not a new concept, in fact, Bath Building Society have offered such products for almost ten years. But now, building societies in Loughborough and Birmingham have entered their own products onto the student mortgage market – to a mixed reception.
What is Buy for Uni?
A mortgage for students, which is secured against a parent or relatives’ income or property. To qualify for a Buy for Uni mortgage, the student will probably need to:
- Meet a minimum age requirement, usually 18 or 21, depending on the lender
- Have a clean credit history
- Have at least two years of university study remaining
- Have support from a guarantor
Though each lender will have different criteria.
The owner then rents spare rooms to fellow students and uses the rent collected to cover bills, maintenance and mortgage repayments.
The benefits
Leaving university with owned property is a huge boost into adult life. Saving for a deposit whilst paying debts from student life is incredibly difficult for young adults, and is resulting in graduates continuing to rent for much longer than previous generations. The Halifax First Time Buyer Review shows that the average age of a first-time buyer is 30, almost ten years older than the average student.
Student mortgage products offer benefits for both students and their parents, including:
- Potential investment: In the right area, the property purchased during university can become a valuable asset in later years, providing a great opportunity to generate extra wealth and a helping hand up the property ladder.
- Tax-efficiency: For parents who already own property, Buy for Uni offers an opportunity to invest in new property, without incurring the recently-increased Stamp Duty on secondary property purchases, through joint ownership with the student.
- Peace of mind: There are plenty of horror stories about student accommodation. Both parents and students could benefit emotionally from knowing that they have stable accommodation and do not need to rely on third parties to organise repairs or resolve issues.
- Fixed interest: Buy for Uni mortgages generally offer fixed interest rates for the remainder of the student’s degree. On a two-to-five year basis. This means that students should be in a better financial situation after graduating and will be able to afford the inevitable fluctuations which follow.
- Extra income: By letting rooms to fellow students, the home owner can generate income to cover the mortgage, bills and maintenance of the property. Ideally, this will mean that the owner is paying a minimal portion of the mortgage, but it could even result in profit!
The pitfalls
If it were all good news, every student would be a home owner. Before jumping into a student mortgage with your son or daughter, it is worth considering:
- Landlord duties: The cliché of a student who has no idea how to cook or clean becomes even more terrifying when they are responsible for maintaining a property. Of course, some parents or relatives may be willing to take on the landlord responsibilities, but the truth is that someone will need to be on call in case of an emergency.
- Income fluctuations: Not only does the rent from other tenants need to cover the cost of the mortgage; there needs to be a plan in place for the summer months, when most students move out of university accommodation and there is a dip in rental income for up to five months.
- House price falls: Whilst property prices usually increase in the long term, they can also fall. The house you buy with your child now, may lose value by the time they come to sell it.
- Long-term commitment: Student accommodation is a temporary solution. In 2015, an average of 71% of UK students continued to live in their university region after graduating. However, this is not a guarantee that your son or daughter will want to stay in the area, or the house that they own, once they leave university.
- Financial liability: Taking the role of guarantor for a student mortgage brings major risks. As the person responsible for paying if your child defaults on mortgage payments, any financial difficulty faced by them can put you into a stressful and potentially damaging situation. Any defaults will also affect the student’s credit history and could impact their ability to access finances in the future.
Buy for Uni mortgages may not be new, but changes in the property market and overall economy mean that each applicant will face different questions about the process and long-term effects.
Many of these questions can be answered with the help of a sound financial plan, but any others should be directed to both the lender and a financial planner.
