By Ashley Pearson, Head of Intermediaries at The Loughborough Building Society
The recently appointed Labour government has announced that its set to impose a 20 per cent VAT charge on private school fees from January 2025.
While it’s unlikely that the decision will have an impact on the majority of primary and secondary school parents across the UK, it got me thinking about the increasing costs and financial burden that’s often associated with higher education.
According to student money website, Save the Student, the average student pays approximately £1,078 per month in living costs, with rent accounting for the biggest chunk in living expenses.
While the amount of rent paid by students varies across the country, from a high of £975 per month in London to £378 in Sheffield, the cost of renting accommodation was by far the largest monthly outgoing made by students in every university town in the UK.
In addition, Unite Group, the largest provider of student accommodation in the UK, has increased its rents by 7 per cent in each of the past two years. This, coupled with the rising costs of tuition fees, means graduates in England leave university with average debts of £44,940, according to data from the Student Loans Company.
For brokers with clients whose children are at university, this can be a huge concern as it means many young graduates will start their professional career owing large amounts of money.
With this in mind, it may be worth exploring the possibility of parents taking out a Buy for University mortgage to help their children get onto the property ladder. Not only will this help them navigate the current problems of supply and demand, it may also relieve some of the financial pressure they face at a later date.
Many of these parents may already have plans to help their children get onto the property ladder once their course is complete. They may also not be aware that they could invest in their child’s future a little earlier by helping them purchase a property while they are still at university.
A Buy for Uni product works by allowing borrowers currently studying at a UK university to purchase a home to live in with the support of their parents. Any spare rooms are rented out to fellow students and friends to cover the cost of the mortgage.
One of the many benefits of a Buy for Uni mortgage is the borrower does not have to pay a great deal of rent on less than great accommodation. Instead, every penny paid in rent will go towards paying the mortgage.
A Buy for Uni mortgage also means the borrower will graduate from university as a homeowner and will not be at risk of being evicted during their time as a student because their landlord has decided to sell.
Buy for Uni mortgages can be agreed up to a year in advance, which makes them ideal for parents whose children may be moving out of halls and into private accommodation.
Borrowers can take out a mortgage for up to 100% of a property’s value provided a security of up to 20% is made as cash deposit or as a collateral charge against the value of their parent’s house.
As the mortgage is taken out on a Joint Borrower Sole Proprietor (JBSP) basis, both the child and parents are responsible for the mortgage payments, but only the borrower/student is registered as the legal owner of the property. As a first-time buyer, they will also qualify for stamp duty relief.
Once the borrower has graduated from university and is in full time employment, they can then remortgage onto a standard residential loan, sell the property on the open market or rent it out to other students.
The collateral charge against the parents’ home or cash deposit is then released and they no longer have responsibility for the payments.
Obviously, a Buy for Uni product will not be an option for every parent in the UK. However, with demand for rental property in university towns and cities high and rents even higher, it may present a viable solution for those parents who can afford to help their children out on the path to home ownership a little earlier than planned.