Growing numbers of university students are becoming landlords, buying properties that they can live in whilst also collecting rent from their student housemates.
Here, we explain how ‘Buying for Uni’ works and look at some of the benefits and disadvantages.
What is ‘Buying for Uni’?
‘Buying for Uni’ products enable students to buy a property in the town they are studying with a 100% mortgage, provided their parents are willing to act as guarantors. Currently, only two lenders offer specific Buy-for-Uni mortgages, Bath Building Society and Loughborough Building Society. Students wouldn’t normally be eligible for standard Buy-to-Let mortgages as they usually have no income or any experience as landlords.
The amount that can be borrowed will depend on the income that will be received from letting rooms within the property. Students can purchase properties in their own name, but their parents or grandparents must act as guarantors and if no deposit is put down, a charge will be made against the parental home.
What are the main advantages of ‘Buying for Uni’?
One of the biggest benefits of ‘Buying for Uni’ is that because it is the student rather than their parents buying the property, they are still eligible for first-time buyer stamp duty relief on homes costing up to £300,000. If buying a property costing up to £500,000, no stamp duty is charged on the first £300,000.
It is possible for students to apply for a Buy-for-Uni mortgage with parents if they want to, but this means they won’t qualify for the relief. In fact, if the parents already own a home, they will have to pay the additional 3% stamp duty surcharge that applies to the purchase of additional properties.
Buy-for-Uni mortgages have several restrictions, which mean they won’t be suitable for everyone.
To qualify for the Loughborough deal for example, students must have at least one full year to go at university, while Bath Building Society requires at least two years. Both allow no more than three occupiers including the mortgage holder, and both lenders state that the property must be within a 10 mile radius of the university.
It’s important for the buyer to consider their longer term plans and what their objective for the property will be. These schemes are designed to allow the purchase of the property as a home for the student, which could be ideal for someone planning to live and work in the area for a number of years and beyond their studies.
If they plan to move away then they may be buying and selling the property in a relatively short time period and so should factor in those transaction costs into their calculations. It may be possible to keep it as a longer term investment but standard Buy to Let mortgages will require a bigger deposit than Buy-for-Uni requires.
There are other ways that students can get onto the property ladder whilst at university.
These include taking out a ‘joint borrower sole proprietor’ mortgage which means the student takes out the mortgage jointly with their parents, but the title deeds of the property are only in the child’s name. To qualify, parents must be able to show they have enough income to cover the repayments. Student owners will need permission from their lender to let rooms to other students.
Another option is a family buy-to-let mortgage, which allows parents to buy a property and let it to their children. Only a small number of lenders offer this kind of deal however.
Seek professional advice if you’re not sure which option is likely to suit you best. A broker will be able to talk you through all the different deals to help you decide on the right one based on your individual circumstances.
Buying for Uni