Student digs have earned themselves a notorious reputation. Damp flats, cramped house shares, and lingering décor from times gone by are just some of the images that spring to mind when you think about student accommodation.
But what if you didn’t need to spend your university years in a neglected bedsit handing over most of your student loan to a landlord? You could become a homeowner or even a landlord yourself.
Read our guide on student mortgages to find out more.
The great news is, yes you can.
The two routes to student homeownership both involve having your parents or guardian join you on the mortgage as a guarantor.
As long as you have no plans to rent out the property, you can apply for a standard residential home loan with any lender that offers what’s known as a joint borrower, sole proprietor mortgage. Or as we call it at Tembo, an Income Boost.
That means your mum and dad join the mortgage application as joint borrowers with you, so you benefit from a boost to your total income. That means your maximum borrowing will increase too.
They are not added to your property deeds, so you remain the sole owner.
When family members are added to the mortgage it means the student and family are individually and jointly responsible for making the monthly repayments and for repaying the mortgage in full.
You’ll need a deposit of at least 5% depending on the lender.
You must be aged 18 or over and will have to pass the same affordability checks applied to any mortgage. Any money you make from part-time jobs may be accepted, along with student maintenance.
Your parents will have to include their salaries on the mortgage application to boost your income. However, the lender will take all their debts into account when they work out how big a mortgage to offer you.
By using a student mortgage, also known as a buy-for-uni mortgage, you can rent out the spare rooms in your house to put towards the monthly repayment as long as you live there too.
Student mortgages are only offered by a handful of small building societies, including Vernon Building Society and Bath Building Society.
You can borrow up to 100% of the purchase price which means you don’t always need to put down a deposit.
If you need to borrow more than 80%, your family members must provide either a cash deposit equal to the amount being lent above 80% or they must allow the lender to put a legal charge on their property for a fixed sum. This differs in value depending on which lender you choose.
A legal charge is like a mortgage in that it means that the lender can force you to sell your property so that they can take back what you owe them.
Example: You want to buy a property for £200,000. You don’t have any deposit, but your parents have savings. Your parents must deposit cash equal to 20% of the purchase price. They hand over £40,000 to the building society to be kept in a savings account.
If your parents don’t have spare savings, they agree to a legal charge on their own home for a fixed sum of at least £40,000. Some building societies ask for more.
Restrictions apply to the type of property you can buy, for example flats are often not allowed and houses cannot have more than four bedrooms and three tenants.
You must live in the house, be in higher education and have at least one more year left on your course. Some lenders insist that the house is close to the university and you’ll need excellent credit history.
Lenders offering student mortgages may accept some or all of your student loan as income to support the mortgage application.
If you choose to use a standard mortgage, rather than a buy-for-uni deal, the lender may factor your future student loan repayments into its affordability assessment which could lower the amount you could borrow.
Their cash deposit is held in an interest-bearing savings account by the building society. It cannot be withdrawn until either the value of the mortgage falls below 80% of the purchase price or the mortgage is paid back when the property is sold or converted to a standard residential or buy-to-let deal once you’ve graduated.
The same principles apply if your parents have chosen to secure a legal charge on their property.
With an Income Boost, no cash changes hands, but they’ll remain on the mortgage (and therefore liable to support repayments) until it’s affordable on your salary alone, say when you start learning after university.
Parents may choose to buy a property using a standard mortgage with a cheaper rate of interest.
Instead of paying expensive rent each month, you can invest in your child’s future by paying a mortgage for them instead.
Buying a second home usually comes with more expensive tax implications, however. Parents will have to pay an additional 3% stamp duty on top of the standard rate if they already own a home.
The property can be transferred into the child’s name in the future when they can afford to support the mortgage. But you may be liable for Capital Gains Tax (CGT) so it’s wise to take tax advice first.
If you sell the property because your child does not want to live in the area after graduation, you might also incur a CGT tax bill.
You can set up an informal agreement with your child for them to pay you rent, which would help ease the cost burden to you.
However, a mortgage lender is not likely to allow you to rely on this income. You’re hardly likely to turf them out if they don’t pay on time.
Words by Samantha Partington