Buying for university
Ashley Pearson, National BDM at The Loughborough for Intermediaries
Every September, the start of a new academic year sees thousands of students up and down the country move out of their parents’ home and settle into life in a new town or city. For some, it’s their first time away from the family home, while for others, it’s as a returning student to a place they now call home.
This rite of passage is an exciting time for many young adults and lays the foundations for the start of their careers and the rest of their adult lives. However, it can also prove to be quite daunting as they navigate the challenges of balancing their studies with the financial commitments of independent living for the very first time.
In the current economic climate of high inflation and a cost of living crisis, the financial pressure felt by many students looks set to increase with the continued squeeze on landlords coupled with growing demand for accommodation likely to drive up competition for housing and force up rents.
In fact, according to figures from UK student landlord, Unite Group, the cost of student accommodation in university towns and cities is expected to rise by 5% in the 2023-2024 academic year alone, as waiting lists for accommodation reached record levels.
For parents with the ability to help their children get onto the property ladder, exploring options such as a Buy for University mortgage could not only help address the current problems of supply and demand, but it could also prove to be a fruitful investment and an ideal route to a way to help them achieve their homeownership aspirations.
A Buy for Uni mortgage works by allowing students to use the financial support of their parents to purchase a property, live in aforementioned property, and be in a position to rent out any spare rooms to fellow students to cover the cost of the mortgage. Meaning they may not have to pay a great deal of rent on less than great accommodation and that they will graduate from university as homeowners.
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 is registered as the legal owner of the property.
The benefits of taking out a Buy for Uni mortgage can be clearly seen in a recent case study from Loughborough Building Society in which a 21-year-old medical student with three years remaining on his course, bought a three-bedroom property in Bristol for a purchase price of £302,500.
The borrower took out a 100% Buy for Uni mortgage with a 20% collateral charge on his father’s house, equivalent to £60,500.00. While the borrower is the legal owner, his 57-year-old father, who is also a doctor, will be listed on the mortgage as a JBSP.
The mortgage was taken out on a variable rate discount basis and has monthly repayments of £1,484.82, which the borrower plans to pay by renting out the two spare rooms at a rate of £600.00 each, leaving him responsible for the £284.82 shortfall.
Once the borrower graduates and is earning a salary, the collateral charge against his father’s property can be released and he can then remortgage onto a standard product, sell the property on the open market or rent it out to other students should he decide to move away.
As with all BTL investments, a Buy for Uni product is not for everyone, but with demand for rental property in university towns and cities high and rents even higher, it presents a viable solution for those parents who can afford to help their children out while also setting them on that all-elusive homeownership path.