University Students: Getting A Mortgage, Is It Possible?

can university students get a mortgage

Getting a mortgage as a university student is possible but challenging. Students often have little to no credit history, and without full-time employment, lenders consider student mortgages high-risk. However, some lenders offer buy for uni mortgages, where students can borrow 100% of the property value without needing a deposit. These schemes usually require a guarantor, typically a parent or legal guardian who owns a house and is responsible for payments if the student defaults. Students with employed or self-employed income may not need a guarantor but could still benefit from one to improve their chances of approval.

Characteristics Values
Difficulty It is difficult for students to get a mortgage, as lenders consider student mortgages to be high-risk.
Options Students have various options for securing a mortgage, including guarantor mortgages, family springboard options, joint mortgages, and buy-for-university schemes.
Criteria Criteria for a student mortgage include having a guarantor, being a UK resident, being at least 18 years old, and having at least one full academic year left on the course when the mortgage begins.
Income Lenders will consider the student's income, including any employment or self-employment income, student loans, bursaries, and stipends.
Deposit A deposit is typically required for a mortgage, but 100% loan-to-value mortgages are available for students with parental security.
Credit History Students usually have little to no credit history, so lenders may use the guarantor's credit history or consider other information such as phone contracts, personal loans, and credit cards.
Affordability Lenders will assess the affordability of the mortgage based on the student's income and the guarantor's financial situation.
Property Type Lenders offering university mortgages may require the property to have no more than three or four rooms and be within ten miles of the university.
Interest Rates Interest rates for student mortgages are typically higher than average, ranging from 2% to 8% above the base rate.
Risks Risks associated with student mortgages include high-interest rates, negative equity, loss of savings or home provided as security, and difficulty finding tenants.
Alternatives Alternatives to student mortgages include guarantor mortgages, gifted deposit mortgages, and buy-to-let mortgages.

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Criteria for student mortgages

Although the criteria for student mortgages vary by lender, there are some general conditions that students must meet to qualify for a mortgage. Here are the key criteria to keep in mind:

Income and Employment

Lenders typically look for regular income when assessing mortgage applications. As a student, you may not have a steady income from employment, which can make getting a mortgage more challenging. However, some lenders may consider student income from various sources, such as bursaries, stipends, or part-time work.

Credit History

A thin credit history can also be a hurdle for students. Lenders use credit history to evaluate your creditworthiness and ability to manage debt. If you haven't had bills or loans in your name before, you may need to take steps to build your credit history and demonstrate financial responsibility.

Guarantor Requirements

One of the most critical criteria for student mortgages is the requirement for a guarantor. A guarantor is usually a parent or close family member who agrees to cover the mortgage repayments if you default. The guarantor provides financial security for the lender and increases your chances of approval. The guarantor typically needs to be a UK resident, own a UK property, be under a certain age (often below 65), and have a strong credit history and stable income.

Deposit and Loan-to-Value Ratio

Student mortgages may require a larger deposit compared to conventional mortgages. While a standard deposit is typically around 5-10% of the property value, student borrowers may need to put down 15% or more. This higher deposit reflects the additional risk associated with lending to students.

Alternatively, some lenders offer 100% loan-to-value (LTV) student mortgages, also known as "buy-for-uni" mortgages, which don't require a deposit. However, these mortgages are riskier for lenders and are therefore less common. They usually require a strong guarantor and often come with higher interest rates.

Property Type and Location

Lenders may have specific criteria regarding the type and location of the property you want to purchase. For example, the property may need to be within a certain distance from your university, typically within a 10-mile radius. The property size is also considered, with a limit of three to four bedrooms to allow for rent-paying housemates.

Academic Status

To be eligible for a student mortgage, you must be enrolled at a university or college and have at least one full academic year remaining on your course. This criterion ensures that you are actively pursuing your studies and have a connection to the UK.

Interest Rates and Fees

Student mortgages often come with higher interest rates than standard mortgages, typically ranging from 2% to 8% above the Bank of England base rate. This is because lenders consider students to be higher-risk borrowers. Additionally, there may be various fees associated with the mortgage, including arrangement fees, valuation fees, and legal fees, which can cost a few hundred to a couple of thousand pounds.

Other Considerations

When assessing your eligibility for a student mortgage, lenders may also consider your academic status, future income prospects, and any existing debt or loans you have. It's important to remember that criteria can vary between lenders, so it's advisable to shop around and compare the requirements of different lenders before submitting your application.

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Guarantors and security

As a student, you will likely need a guarantor to get a mortgage. A guarantor is someone who promises to pay your debt if you default on your loan obligation. Guarantors pledge their assets as collateral against the loans. Typically, a guarantor is a parent or other close relative who uses their savings or property as collateral security against your mortgage and signs a formal declaration agreeing to make the payments if you are unable to do so.

Requirements of a Student Mortgage Guarantor

  • Be a direct family member or legal guardian.
  • Own a property in the UK.
  • Be a UK resident with permanent residency rights.
  • Meet the minimum and maximum age requirements of the selected lender.
  • Have a sustainable source of income or savings to fall back on.
  • Have a good, clean credit history.

Types of Mortgages Available to Students

  • Buy-for-Uni mortgage: This allows students (supported by family) to secure a 100% loan-to-value mortgage. However, this product has stringent property and location requirements.
  • Guarantor mortgage: This involves financially stable family members boosting approval prospects.
  • Family springboard mortgage: This allows family members to contribute 10% of the property's value as collateral, enabling a 5% buyer deposit.
  • Joint borrower, sole proprietor mortgage: This permits multiple contributors with a single property owner.

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Student income and affordability

Students' income and affordability play a crucial role in their ability to secure a mortgage. While it is possible for students to obtain a mortgage, it is typically more challenging than for those in full-time employment. Lenders assess borrowers' creditworthiness, including their income sources and stability.

Students' income can vary depending on their employment status, scholarships, bursaries, stipends, or other financial support. Lenders may have different criteria for accepting these income types, with some considering them while others may not. For example, student loans are generally not considered a stable income source and are often excluded from affordability calculations.

To enhance their borrowing prospects, students can consider the following factors:

  • Employment: Students with part-time or full-time employment are in a stronger position. Lenders favour applicants with consistent income, as it demonstrates their ability to make regular mortgage payments.
  • Guarantors: A guarantor, typically a parent or legal guardian, can significantly improve a student's chances of obtaining a mortgage. Guarantors provide financial security and are responsible for payments if the student defaults. This option is especially beneficial for students without stable income or credit history.
  • Deposit Size: A larger deposit can increase the likelihood of mortgage approval. A higher contribution reduces the loan-to-value (LTV) ratio, making the application more attractive to lenders. Students aiming for a 100% LTV mortgage may need to provide additional security, such as parental property equity.
  • Credit History: While students may have limited credit history, lenders will assess their creditworthiness based on factors such as phone contracts, personal loans, and credit card usage. Building a solid credit score before applying for a mortgage can enhance a student's chances of approval.
  • Alternative Income Sources: Students may have alternative income streams, such as investments or gifts from family members. These sources can demonstrate financial stability and improve affordability assessments.

In summary, while students' income and affordability play a crucial role in mortgage approvals, there are various options available to enhance their prospects. Employed students with stable income, guarantors, and strong credit histories are generally better positioned. Additionally, larger deposits and alternative income sources can also improve their chances of securing a mortgage.

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Types of student mortgages

Although the criteria for a student mortgage are quite strict, it is possible for students to get a mortgage. Here are some of the options available:

Buy for Uni Mortgages

Also known as a "buy-for-university" mortgage, this option lets you buy a home, live in one room, and rent out the others to your mates. It's a student-friendly take on the classic buy-to-let mortgage. As the landlord, the rent you collect could help pay off your mortgage every month.

To qualify, you'll generally need to meet the following criteria:

  • Have a guarantor, usually a parent or close relative, who agrees to cover the mortgage if you can't.
  • Show that the expected rent from letting out rooms will be enough to cover mortgage payments.
  • The property should be within a reasonable distance from your university, often within 10 miles.
  • The property should typically not have more than three or four bedrooms.
  • The property should ideally be a house, as some lenders may not accept flats or studio apartments.
  • You must be a student with at least one full academic year left on your course.

Student Mortgage Loans

These are more general than the buy-for-uni mortgage but are still aimed at students. Student mortgage loans can vary a lot depending on the lender. Some lenders may be more flexible with their requirements, understanding that students won't have the same financial background as someone who's been working for years.

Guarantor Mortgages

These involve a family member or friend agreeing to cover the mortgage payments if you can't. It's a way to get a mortgage based on someone else's financial stability, not just your own.

Gifted Deposit Mortgages

Sometimes, family members can 'gift' you the deposit needed for a mortgage. It's a generous way to get the lump sum you need without the pressure of paying it back.

Buy-to-Let Mortgages

If you're buying a property to rent out, this type of mortgage might be an option. It's a different kind of financial commitment but can work well if you're living in one room and renting out the others.

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Student mortgage rates and fees

  • Buy-for-university scheme: This option allows students to get a 100% loan-to-value (LTV) mortgage while renting out rooms to cover the repayments. The interest rates for this type of mortgage are typically higher, ranging from 2% to 3% above the Bank of England base rate. There is no option for a fixed rate, and the student must have support from family members or guardians who own a UK property.
  • Guarantor mortgage: In this case, the student takes out a loan with the financial backing of a family member or guardian. The guarantor must own a UK property and go through thorough checks. The interest rates for guarantor mortgages can be high, typically around 4.8% variable.
  • Family springboard mortgage: This option involves assistance from financially stable relatives who are willing to put down a deposit of 10% of the property's worth into a savings account with the lender as collateral. The buyer contributes 5%.
  • Joint borrower, sole proprietor mortgage: This type of mortgage is aimed at first-time buyers and allows multiple people to make mortgage payments while only one person owns the property. It is often used by wealthy family members to help students cover the costs.

It is important to note that students seeking a mortgage may need to have a guarantor, especially if they have no form of employed or self-employed income. The guarantor must be a direct family member or legal guardian who already owns a house in the UK and has the permanent right to reside there. The maximum age of the guarantor at the end of the mortgage term varies between 75 and 80 years old, depending on the lender. Additionally, most student mortgages require a deposit of at least 15%.

Frequently asked questions

Yes, it is possible for university students to get a mortgage, but it can be challenging without a full-time job. Students often require a guarantor, such as a parent or legal guardian, who is responsible for payments if the student defaults.

Lenders typically require a guarantor and a deposit, usually ranging from 10% to 20% of the property value. The guarantor must be a UK resident, own a property in the UK, and have the permanent right to reside.

A student mortgage allows individuals to get on the property ladder early and potentially earn an income by renting out rooms to fellow students. It can also help students avoid paying high rental fees and provide them with their own property after graduation.

Student mortgages are typically available with a guarantor, who is responsible for payments if the student defaults. The guarantor is usually a parent or legal guardian. The subject of study may impact the mortgage application if it affects the student's income or prospects.

Student mortgages come with certain risks. 100% loan-to-value (LTV) mortgages put individuals at risk of negative equity if property values drop. Additionally, parents who provide savings or equity as security may lose their savings or home if the mortgage isn't paid.

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