Buy for Uni questions answered
How does the mortgage work?
The principle behind The Loughborough Buy for Uni mortgage is simple. With the help of family members a student can buy a house rather than pay a great deal of rent for less than great accommodation. They rent spare rooms in the house to friends or fellow students and the rental income covers the mortgage payments.
The mortgage comes with a range of options that mean family members with a variety of circumstances could make it possible for their child to become a home owner, even while in full time study. See also our leaflet here.
Who can apply for a Buy for Uni mortgage?
The Buy for Uni mortgage is available to 18+ year old UK resident students in Higher Education throughout England and Wales who have at least 1 full academic year remaining of the course on completion of the mortgage.
How much could I borrow?
We will lend up to 100% of the value of the property, subject to a maximum of £400,000 (minimum £90,000). We will assess your application and the actual amount you can borrow will depend, among other things, on the income that will be received from letting rooms within the property. Where there is insufficient rental income to support the mortgage, we will consider the income of the family member(s) supporting you, after the deduction of financial commitments.
What sort of property is acceptable?
The property must be in England or Wales, within a 10 mile radius of the University attended and have a maximum of three bedrooms. There are some properties we won’t consider, for example ex local authority flats, studio flats that don’t have a separate bedroom and bathroom and flats in London.
Who can I let rooms to?
We won’t allow more than three occupants, including the mortgage holder. The other tenants don’t have to be students but tenancies must be granted under an Assured Shorthold Tenancy agreement.
What security is needed?
If your application meets our criteria, we will provide a mortgage on the property to be purchased. Additionally, on loans greater than 80% of the value of the property, we will also need one of the following:
- Security through savings: this allows the family member(s) to use their savings to help the buyer without having to ‘give’ the money to them. The family member(s) deposit cash in a specifically designed savings account with the Society. The cash deposited must be equivalent to the difference between the amount being borrowed and 80% of the value of the property to be purchased.
- Security through property: this allows the family member(s) to help even if they don’t have spare cash but do have equity in their home. The family member agrees to some of the equity in their residential property being used as security. They would do this by giving what is called ‘a legal charge’ over the required amount of equity which means the Society would have specific legal rights over the family member(s)residential property.
- Or, a combination of options 1 and 2 is available. The minimum amount of each security option is £5,000.
The security noted in the examples above can be used to make up any shortfall (loss) that arises when the property is sold. There are also other circumstances which allow the Society to exercise its rights over the security. These will be made clear when you talk to us.
What type of further support is needed?
Support is needed from a family member for all Buy for Uni mortgages. There are two types of support that could be required depending on your circumstances:
- A guarantee to pay any shortfall in the monthly mortgage payment amount. This is an income guarantee; and/or
- A charge on assets owned by the family member(s). This could be cash held at the Society or spare equity in the family member’s residential property or a combination of the two as described earlier.
In order to ensure the family member providing support understands their obligations we will provide documents setting this out clearly and will also ask that independent legal advice is sought. The family member doesn’t have any legal right to the property and their name doesn’t appear on the deeds.
What happens when the borrower finishes their course?
The Buy for Uni mortgage is designed specifically to enable the borrower to take ownership of a property while they are studying. Once their studies come to an end their future intentions will affect the mortgage.
Whether they intend; keeping the property as their personal residence without tenants, continuing to live in the property with tenants or moving out and converting the mortgage to a Buy to Let they will need to contact us to confirm their decision.
The potential options available to them will depend on their individual circumstances.
What is collateral security?
Collateral security is where the Society registers a legal charge over your family member’s residential property. The amount of the charge will be limited to the value of the security being provided and will be prepared and registered by the borrower’s solicitor.
What is cash security?
Cash security is where your family member deposits cash in an Assisted Purchase Deposit Guarantee Account. The account must be in the names(s) of the family member(s) who have provided the guarantee. The cash security agreement will be prepared and registered by the borrower’s solicitor.
Can a combination of Cash security and Collateral security be used?
Yes. If a family member wishes to provide both types of security, they can, subject to a minimum amount of £5,000 for each of the security options. For example, if the total deposit security required is £40,000 a £5,000 cash security and £35,000 collateral security is acceptable.
Who owns the property?
Like any other mortgage the property is owned by the borrower. Family members providing support have no rights to the property.
Can more than one family member provide support?
This may be possible and our mortgage advice team can discuss this option with you. All family members providing support would need to agree how the deposit security is split between them and they would all be required to take separate independent legal advice.
Can family members help more than one member of their family at the same time?
Yes, there are no restrictions on the number of family members that can be helped in this way.
You can help more than one family member with cash as security; however, it will be necessary to have a separate Assisted Purchase Deposit Guarantee Account for each cash security.
Helping more than one family member using collateral security against property would need separate mortgage collateral deeds for each deposit security being provided. The total of all existing mortgages and all mortgage collateral deeds is strictly limited to a maximum of 75% of the family member’s residential property value.
Are savings provided as cash security covered by the Financial Services Compensation Scheme?
Will family members get regular statements?
No. Annual mortgage statements will only be provided to the borrower because the family member isn’t responsible for maintaining the monthly mortgage payments. The family member will, however, be notified if mortgage payments are not made as required.
What are family members liable for?
A family member who provides cash security needs to be fully aware that the cash will be called upon to make up any shortfall if the property is sold in the event of default and the proceeds are less than the mortgage debt plus costs. Where property is provided as security the family member’s residential property may be repossessed by us to recover the debt. Liability is limited to the amount of the security.
Family members will also be required to provide a guarantee to pay any shortfall in the monthly mortgage payment amount.
If security is provided by more than one family member, the liability to make up any shortfall will be divided proportionately by reference to the value the respective securities bear to the total value of all additional security linked to the Family Deposit Mortgage. For example, if the total guarantee provided was £40,000 and family member A provided £30,000 (75%) and family member B provided £10,000 (25%) and the property was repossessed and sold at a loss of £20,000 then family member A would lose £15,000 (75%) and family member B would lose £5,000 (25%).
All family members will be required to take independent legal advice before the borrower is committed to the purchase.
What happens if the mortgage account goes into arrears?
The borrower is responsible for ensuring payments are made when due and for the full mortgage amount outstanding, plus interest, costs and expenses. The Loughborough will ensure that family members receive communications relating to the mortgage account and are notified if payments are not kept up to date.
What happens if the property is repossessed?
If the property is repossessed and sold for an amount less than the balance of the mortgage account including fees and charges, the family member will be liable for the shortfall up to the limit of the security provided.
If a cash security deposit has been provided, the shortfall will be recovered from the Assisted Purchase Deposit Guarantee Account. If collateral security has been provided, the shortfall will be recovered from the proceeds of the sale of the family member’s residential property unless the shortfall can be met through other means.
What happens if the family member or if in joint names, one of the family members dies?
The Loughborough will assume power of attorney in accordance with the Security Deposit Agreement (for cash security) or the Collateral Charge document (for a collateral security). The family member’s estate has the option of paying off the security liability and providing that the remaining release conditions are met then the security may be relinquished. This will be explained to you further by your independent legal adviser.
How are family members released from their commitment?
The release conditions as detailed in the Security Deposit Agreement (for cash security) or the Collateral Charge document (for a collateral security) must be satisfied. In summary, the family member will be released if;
a) The mortgage debt under guarantee is repaid in full; or
b) A formal request is made on the basis that the release conditions set out in the Agreement and repeated below have been satisfied in full;
I. The borrower is not in breach of their mortgage terms and conditions; and
II. The borrower has made all monthly mortgage payments in full when due in the previous six months; and
III. The Society is satisfied, acting as a reasonable and prudent lender, that the borrower is able to afford to continue to make monthly payments and discharge their obligations under the mortgage for the remainder of its term; and
IV. The amount of the mortgage debt under guarantee does not exceed 75% of the open market value of the charged property based on the valuation undertaken at that time by the Society’s valuer i.e. the mortgage balance must be no more than 75% of the valuation for mortgage purposes at the time the release request is received.
Why do family members need to get independent legal advice?
It is a condition of the mortgage that family members get independent legal advice to ensure they understand the commitment they are making and the risks involved before giving us a legal charge over cash and/or property. To avoid a conflict of interest, family members can’t use the same solicitor who is conducting the conveyancing on the linked mortgage but it can be another solicitor from the same firm.
Can the property be purchased before the course starts?
It's possible to purchase the property up to 1 year in advance providing a place on the course has been offered and accepted. It's also possible to live away from the property if the course requires a work placement to be undertaking in another town/city. In either case you should consult the local authority for advice on whether an additional licence would be required to allow you to rent out rooms.