What comes to mind when you think “Student House” – An Expensive, run down, messy property, with a greedy landlord? Well, what if you could take control of your housing arrangements by owning your own student house while studying?
Unlikely as it seems, it may be possible to take out a mortgage to buy a property to live in whilst studying at Uni. However, there are several factors to consider and requirements to meet when applying for a mortgage. In this article we’ll explain the key things you need to know.
How does buying for university work?
There are only a handful of lenders which will allow you to do this and the way they assess the affordability is based on having parental support. This is known as a Joint Borrower Sole Proprietor Mortgage. Similar to ‘Guarantor’ mortgages of the past, this is where the mortgage is taken out by two (or more) borrowers but not all borrowers are legal owner(s). Often this could be a son or daughter who is buying for university being the legal owner(s) and their parent(s) being joint borrowers on the mortgage, which could increase the overall borrowing capability and allow a higher value property to be purchased.
Lenders will also expect you to let out the spare room(s) in the property and use the expected rental income for affordability purposes. They may require there to be an AST (Assured Shorthold Tenancy) in place, for a fixed period of no less than 6 months and no more than 12 months.
This means that although both the borrower and the parent(s) are jointly responsible for paying the mortgage the lender will expect the payments to be made from the rental income received.
Eligibility: Most lenders will require the following:
– 3-year address history of living in the UK
– Permanent right to reside in the UK
– Students who are attending a university in England or Wales, signed up to a course which is for 3 or more years.
Deposit?
The lenders which offer mortgages for university may lend up to 100% of the property value – meaning you might not need any deposit at all. Therefore this is a great way of getting on the property ladder if you don’t have a deposit.
However if you do have a deposit available of at least 5%, you might find more favourable lending terms are available.
Tax considerations:
Joint Borrower Sole Proprietor Mortgages don’t affect the parents tax status & it also allows the son/daughter to buy their own place and still benefit from First Time Buyer stamp duty relief.
Borrowers who let out a spare room are able to receive a tax-free allowance of up to £7,500 per year, but all rent should be declared on the homeowner’s self assessment tax return and any profit made over this may attract a tax liability. For more information, please visit the Gov.uk website.
What happens when you finish university?
You should think carefully about your plans for this time, as the next step depends upon your own circumstances. For example, you may continue living in the property and start a career, converting to a standard residential mortgage. You could continue to rent rooms out if you require.
Alternatively, it may be possible to keep the property as a buy to let investment – you’d need to convert to a buy to let mortgage should you wish to do this and then the current or new lender will need to reassess affordability at that time.
If the mortgage repayments are on an interest-only basis, then the outstanding loan amount will not reduce over time. If you retain the property after university, then you will need a suitable repayment statuary. For example, sale of the property.
Some lenders may offer products with no early repayment charges, meaning if your university course ends before the term of the product, you won’t be charged extra fees to either convert to a Residential or Buy to Let mortgage or sell the property and move on.
If this has got you thinking, we’d love to hear from you. Get in touch and we’ll be help you understand what’s possible, or sign up to our monthly newsletter, to keep your finger on the pulse.
Will Sproule – 19th June 2023
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