Joint Borrower Sole Proprietor – Buy for Uni FAQ’s
To help give you more information and guidance on our Buy for Uni products, we’ve put together answers to the following Frequently Asked Questions.
How does the mortgage work?
The principle behind The Loughborough’s Joint Borrower/Sole Proprietor Buy for Uni mortgage is simple. With the help of family member(s) named on the mortgage it enables students to get onto the property ladder and buy a house rather than pay a great deal of rent for less than great accommodation. Spare rooms in the house can be rented to friends or fellow students and the rental income helps cover the mortgage payments.
The mortgage comes with a range of options that mean family members with a variety of circumstances could help student relatives become a home owner, even while in full time study.
Who can apply for a Buy for Uni mortgage?
The Buy for Uni mortgage is available to 18+ year old UK nationals who are students in Higher Education throughout England and Wales who have at least 1 full academic year remaining of their course on completion of the mortgage. The mortgage will be in the joint names of the student and up to two family members (who must live together) All parties to the mortgage will be responsible for the mortgage payments but only the occupying borrower (the student) will be named on the property title at the land registry (as the owner/proprietor). It’s a commitment from all so it’ll be a condition of the mortgage that all parties obtain independent legal advice so that they’re aware of their responsibilities and rights and what might be involved should there be a change in circumstances.
Who owns the property?
The occupying borrower (the student) will be registered as being the owner of the property. This means that family members will be responsible for the mortgage payments and be bound by the terms and conditions of the mortgage but will have no automatic rights to the property including any entitlement to potential sale profits.
How much can I borrow?
You could borrow 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 and if there is insufficient rental income to support the mortgage payments, we can include personal income of the family member(s) supporting you, after the deduction of their own financial commitments. We’ve set out our requirements separately if you want to borrow above 80% of the value of the property.
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 occupying borrower. The other tenants don’t have to be students but tenancies must be granted under an Assured Shorthold Tenancy agreement.
What additional security is needed if I want to borrow up to 100%?
For loans greater than 80% of the value of the property being purchased, we will also need one of the following:
- Security through savings (Cash security): this allows the supporting joint family member(s) to use their savings to help the occupying borrower without having to ‘give’ the money to them. The joint family member(s) deposit cash in a specifically designed deposit guarantee 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. 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.
- Security through property (Collateral security): this allows the joint family member(s) to help even if they don’t have spare cash but do have equity in their home. The joint 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. 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.
- 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 provided. These will be made clear in the mortgage offer conditions and explained to you by the Solicitor providing legal advice.
What are family members liable for if they provide cash or collateral security?
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.
All family members will be required to take independent legal advice before the borrower is committed to the purchase.
Can family members help more than one member of their family at the same time?
This may be possible and our mortgage advice team can discuss this option with you. .
Will family members get regular mortgage statements?
Yes. Mortgage statements are sent out annually to all parties named on the mortgage.
Are savings provided as cash security covered by the Financial Services Compensation Scheme?
What happens if the mortgage account goes into arrears?
All borrowers are 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 all borrowers 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 security provided will be called upon.
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 and unless the shortfall can be met through other means, we are entitled to recover the shortfall by selling the supporting family member’s residential property.
What happens if the supporting family member or if in joint names, one of the supporting 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.
When can family members release their deposit guarantee commitment?
The maximum mortgage term allowed for this product is seven years. If you want to release the deposit guarantee commitment earlier, this can only be done if;
a) The mortgage debt 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 borrowers are not in breach of their mortgage terms and conditions; and
II. All monthly mortgage payments have been made in full when due in the previous six months; and
III. The amount of the mortgage debt does not exceed 75% of the open market value based on the valuation undertaken at that time by the Society’s valuer.
Why is independent legal advice needed?
We want to be sure that all parties to the mortgage get independent legal advice to ensure they understand the commitment they are making and the risks involved before entering into a joint borrower/sole proprietor arrangement and/or giving us a legal charge over cash and/or property. To avoid a conflict of interest, supporting family members can’t use the same solicitor who carrying out the conveyancing for the purchaser but it can be another solicitor from the same firm.
Can the property be purchased before the course starts?
You can purchase the property up to 1 year in advance providing a place on the course has been offered and accepted. You can also 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.
What happens when the course ends?
The Buy for Uni mortgage is designed specifically to enable a student to take ownership of a property while studying. The maximum term allowed under the Buy for Uni Mortgage is seven years. Once your studies come to an end, what you do next will affect the mortgage. Whether you intend; keeping the property as your personal residence without tenants, continuing to live in the property with tenants or moving out and converting the mortgage to a Buy to Let you will need to contact us to confirm your decision. The potential options available will depend on individual circumstances.
If you have a question which is not answered in the above FAQ’s or if you require any further information or guidance, please get in touch here.