CALLING ALL STUDENTS! You can now get a Mortgage with no deposit, but there some risks you need to be aware of. Read our blog to know what you need to look out for when getting on the property ladder for the first time.
You can now get a Mortgage with no deposit, but there some risks you need to be aware of. Read our blog to know what you need to look out for when getting on the property ladder for the first time.
It’s TRUE! Stephen Kerrigan, of Mortgages Remortgages – Doncaster Fee Free Mortgage Advisor brings University students good news as it was announced earlier this week that Students who’d rather live in their own pad can now get onto the property market with a 100% Mortgage and no deposit. However, with every good news there is always some not so good news, their parents’ cash could be at risk!
The idea of Buy for Uni is so that University Students don’t have to spend thousands of pounds on rent throughout their degree course, while also getting experience by being on the property ladder.
Stephen Kerrigan, Mortgage Advisor has put together a list of pros and cons, and we also get to take a look at how the new mortgage works.
A ‘Buy for Uni’ Mortgage is being offered at a five-year discounted rate, 4.7% over a 25-year term or sooner if a parent hits 75-years’ old. After five years, the rate rises to 5.2% standard variable rate (SVR).
It’s for properties in England and Wales only, as well as University locations such as, Doncaster and Yorkshire regions as well as, York, Leeds and Hull are priced between £125,000 to £300,000. They also have to be within a rough 10-miles radius of their chosen University campus.
Properties must have a maximum of four bedrooms and three tenants, so that the house can hold three housemates with a bedroom each, plus the student who owns the place in the fourth bedroom. Disclaimer alert, flats are not allowed on the Mortgage.
Students need to be over the age of 18-years’ old and enrolled in higher education with at least 1-year left of their course. For those looking to take out an up to 80% ‘Loan to Value’ deal, which means they have a mortgage on up to 80% of the property and up to 20% deposit. It comes with a £499 set-up fee price. However, if you borrow between 81% and 100% of the property’s value, there will be a £899 set-up fee price. If you need to get out of a Mortgage early, there are no early repayment chargers.
The ‘Buy for Uni’ Mortgage then is a great step up for getting onto the property ladder, and becoming a First-Time Buyer at a younger age. You can read our earlier blog about First-Time Buyers.
A ‘Buy for Uni’ Mortgage is known as a joint borrower, sole proprietor deal. This means in reality, it is that the Student is the sole proprietor and the only owner of the property, but the parents are the joint borrowers on the Mortgage.
This also means that parents who aren’t on the title deeds, assuming that the student is a First-Time Buyer, the Stamp-Duty is the only thing that has to be paid on Properties over £300,000. The Student is basically a Buy to Let landlord, taking rent from his fellow housemates to help cover the Mortgage Payments over a monthly period.
Getting a Mortgage that exceeds 80% of the property’s value, parents will either have to stump up an effective cash deposit for the amount of the loan that’s above the 80% Loan to Value. This is held by the Building Society in a Financial Service Compensation scheme protected account that pays 1% of the interest, and is returned at the end of the Buy for Uni Mortgage deal.
Here’s the dodgy bit, parents can put a stake of the equity in their own home and put it on the line (you know, the bad red dotted line…) this is the equivalent to the amount of the loan that exceeds 75% of the Loan to Value. For example, a £200,000 house price with a 100% Mortgage, parents would have to put down a £40,000 cash deposit or have £50,000 charge against their own home.
This means that the Parents’ cash is on the line if they face their home being repossessed. Although, some say that it won’t use the money to cover any missed Mortgage Payments.
Upon graduating from your course, the Students’ Mortgage can either be transferred to a residential Mortgage if you would like to remain in the property as their own home and for it to be converted to a full buy-to-let Mortgage if they want to let and move elsewhere, or the property can be sold and the Mortgage repaid. When this happens, the parents’ cash or equity stake back as long as the house hasn’t fallen into a negative equity and the Mortgage loan is repaid.
A Buy for Uni Mortgage is the cheapest Mortgage on the market, but the next best deal is with The University of Hull’s Buy for University deal. This has a higher 4.84% rate on its 5-year discount deal and a higher £999 product fee price. This is a slightly different Mortgage compared to the Guarantor Mortgage, which sees a cash security being provided by a family member which again is equal to 20% of the property value, although, the family member isn’t on the title deeds.
Stephen Kerrigan, a Mortgage Advisor from Doncaster mentioned in a quote:
“This new market-lending deal could well entice Students looking to get on the Property Ladder as a First-Time Buyer, but may struggle as they may not have enough savings. With this Buy for Uni Mortgage set-up, the student would become their very own landlord by charging rent for any spare rooms to Housemates, so that they can cover the Mortgage cost. There is also more security with home ownership than renting too, and Students will no doubt be wanting to avoid any upheaval whilst they concentrate on their degree course.”
(Mortgages Remortgages, Stephen Kerrigan)
Stephen Kerrigan also added that the discounted Mortgage has no early repayment charge so parents can move the deal without incurring any redemption charges. This might be worth keeping in mind, as the interest rate is variable and could change at any time such as, the base rate rising.
Get on the property ladder and avoid paying thousands in rent during your course.
Rent out rooms and you should make enough money to cover your mortgage repayments and potentially your bills too.
Avoid Stamp Duty. If your child buys their first property rather than you buying a property for them, you should avoid all Stamp Duty as they benefit from first-time buyer relief. In contrast, you would pay standard stamp duty plus the additional rate if you already own your own home. On a £300,000 property that is a £14,000 saving.
Other costs. Even a 100% mortgage doesn’t cover all the costs involved in buying a property. You’ll still need to be able to cover conveyancing bills, surveys, insurance etc.
Market exposure. With a 100% interest-only mortgage you risk getting in a hole if house prices fall. Even a small drop could mean you would end up in negative equity.
Interest rates. The rates offered on Buy-for-Uni mortgages are higher than on traditional home loans.
Risk. If anything goes wrong the property could be repossessed and sold by the lender. Any shortfall between the mortgage debt and what the property is sold for would be claimed from the capital parents have put up. So, you are risking your cash or equity when you sign up.
third year University Student Jonathan Pearson, who is studying hard ahead of his final exams – but, unlike other students, Jonathan will graduate with a profit, not a Student Debt, unlike most students (and unlike me for that matter). He is not from a wealthy background but stands to make at least £30,000 after buying a home, rather than renting while at college.
Mostly all homebuyers struggle for years to find the necessary deposit with a bank or building society, but with this student he didn’t even have to put down a deposit, he managed to obtain a 100% loan to secure a Buy for Uni Mortgage. At just 20-years’ old the Student was granted a £183,000 Mortgage by a Building Society to buy a three-bedroom House near his University Campus (within a 10-Mile Radius). He turned the lounge area into a bedroom for his own use, and rented the three other bedrooms to his Housemates, there making him his own landlord.
The cost of servicing a Buy for Uni Mortgage was just £775 a month, much less than the amount of money Students were paying on rent. However, the Student budgeted costs of £1,100 per month to cover all of his utilities and insurance, but has still enjoyed a profit of around £200 a month while living rent free. Even if there had been no rise in Property prices, the Student would have been in profit. But over the last two years, prices in his University area, which are usually commuter towns, filled with areas in city centres that Students love… Nightclubs!
So, how does a 20-year old Student studying at University grab a 100%, £183,000 Mortgage to be repaid on an interest-only basis? With almost every other Student and Young First-Time Buyer, they have to put down a deposit and make repayments that would cost around £1,075 a month rather than £775 once the repayment is added on top of the interest rate.
The risks are also numerous. Property prices go down as well as up. The students may not pay the rent on time. The student owner may want to drop out of university. The parents will find Remortgaging or arranging other finance much more onerous while they are guaranteeing another loan. The property itself may have other costs – such as boiler breakdowns or other mishaps.
This is when first-year students begin eyeing up where they are going to live in their second year, starting in September or October – which is where the society’s “Buy for Uni” product comes to the fore. However, this scheme enables a young student to not only buy a home in their own name, but also to benefit from the resulting rental income. And hopefully in time it will allow them to offset their student debts and be more financially buoyant than their peers.
So, the main question here is… ‘Can University Students get a Mortgage?’ Yes, yes you can, but make sure you read it into first and talk to your parents so you know you’re making the right decision.