Lana Oconnell
University students can get a mortgage, but it is not easy. Lenders require proof of income, and student loans do not count as income. Students with part-time jobs may not meet the minimum income required to be considered for a mortgage. However, students can increase their chances of getting a mortgage by having a guarantor, such as a family member, and saving up for a larger deposit. A handful of lenders, including building societies, offer 'buy for university' or 'buy for uni' mortgages, which allow students to get on the property ladder early. With these mortgages, students can borrow 100% of the property value, but interest rates are relatively high.
| Characteristics | Values |
|---|---|
| Subject of study | Irrelevant unless it affects income or prospects. Student nurses may qualify for specialist key worker mortgages. |
| Student income | Some lenders accept student income through bursaries and stipends, but not all. |
| Guarantor | Usually required. Must be a direct family member or legal guardian who owns a house, lives in the UK, and has the permanent right to reside. |
| Deposit | A larger deposit will make the application more attractive to lenders. |
| Lenders | Only a handful of lenders offer student mortgages, including Vernon Building Society, Bath Building Society, and Loughborough Building Society. |
| Interest rates | Interest rates for student mortgages are higher than usual, ranging between 2% and 3% above the Bank of England base rate. |
| Risk | 100% LTV mortgages are high-risk, as negative equity may result in a struggle to remortgage or settle the balance. |
| Rental income | Rental income may be enough to cover the entire mortgage and provide a tax-free income. |
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What You'll Learn
University mortgages: the basics
University mortgages, also known as student mortgages or buy-for-uni mortgages, are a relatively new concept. They are designed for students who want to buy a property while studying and are different from a conventional mortgage or a buy-to-let mortgage.
University mortgages are available from a handful of lenders, including building societies such as Vernon, Bath, and Loughborough. These mortgages are 100% loan-to-value (LTV), meaning that students can borrow the entire property value without needing a deposit. However, to be eligible, students must meet specific criteria, including being a UK resident, being over 18, and having at least one full academic year left on their course.
The role of guarantors
University mortgages often require the involvement of a guarantor, typically a family member or legal guardian who owns a house and has the right to reside in the UK. The guarantor provides security to the lender by offering a deposit or equity in a property, such as their family home. In the event of missed payments, the guarantor becomes responsible for making the payments.
Income considerations
Lenders understand that students will earn an income from the property by renting out rooms to other students. This rental income can sometimes cover the entire mortgage cost. However, students should also be aware of the risks involved, such as empty rooms or void periods, which can impact their ability to make payments.
Alternative options
While university mortgages are an option, they are not the only way for students to get a mortgage. Some lenders offer guarantor mortgages, where a family member financially backs the loan. Additionally, students can explore joint mortgage and sole proprietor products, or consider saving for a deposit to access more competitive rates.
Course of study considerations
The course of study can also impact a student's mortgage application. For example, student nurses may have more options due to their revenue stream from working during their studies and strong employment prospects upon graduation. Ultimately, lenders will consider affordability, stability, and the strength of the guarantor when evaluating a student's mortgage application.
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What lenders require
While it is possible for university students to get a mortgage, it is not easy. Lenders will typically require proof of income, and loans do not count as income. Some lenders will accept student income through bursaries and stipends, but not all.
Lenders will also require security, such as a deposit or equity in a property. Some lenders will allow the deposit to be gifted, but most will require the guarantor to deposit funds into a savings account. Guarantors are usually necessary, and they must be a direct family member or legal guardian who already owns a house, lives in the UK, and has the permanent right to reside. The guarantor must also be under 75–80 years old by the end of the mortgage term.
The guarantor's role is to step in and make payments if the student misses them. In this way, the guarantor's credit history and assets are considered more important than the student's.
Lenders will also require the student to have at least one full academic year left on their course when the mortgage begins. The property must be within 10 miles of campus, and it must not have more than three or four rooms, depending on the lender.
Students can get a 100% loan-to-value (LTV) mortgage, but these are high-risk. If the property value drops, the borrower may struggle to remortgage or settle the mortgage balance if they decide to sell. The interest rates for student mortgages are also higher than for regular mortgages, ranging between 2% and 3% above the Bank of England base rate.
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The role of parents
Guarantor Mortgages
One of the most common ways parents can assist is by becoming guarantors on their child's mortgage. This means that if the child defaults on payments, the parents are legally obligated to cover them. While this can impact the guarantor's credit score and financial stability, it increases the affordability assessment for the lender, making it more likely for the child to secure a mortgage. It's important to note that acting as a guarantor intertwines financial responsibilities and may affect the guarantor's ability to borrow in the future.
Providing Security
For certain mortgage options, such as the “Buy for University" scheme, parents must offer security to the mortgage provider. This can be in the form of a deposit or equity in a property, such as their family home. This security minimizes the lender's risk and can make a significant difference in getting a mortgage approved.
Family Springboard or Savings as Security Mortgages
In this scenario, parents deposit a sum of money, typically around 10% of the property value, into a savings account linked to the mortgage. This acts as security for the lender, allowing the child to obtain a mortgage with a lower or no deposit. The parents get their savings back, often with interest, as long as the mortgage payments are made on time.
Gifting a Deposit
Parents can also directly contribute to their child's mortgage by gifting them a lump sum for a house deposit. This option is often preferred by lenders as it indicates lower financial responsibilities for the child. It's important to note that large gifts for house deposits may be exempt from inheritance tax if the giver survives for seven years after making the gift.
Income Boost
Parents can add their income to their child's mortgage application, increasing the total income assessed for mortgage affordability. This can help the child borrow more and get on the property ladder sooner.
In conclusion, while university students can face challenges in obtaining a mortgage, parental support in the form of guarantors, financial contributions, and security can play a significant role in improving their chances of securing a mortgage and getting on the property ladder.
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Pros and cons
Pros of getting a mortgage as a university student
University students can get a mortgage through a handful of lenders, including:
- Vernon Building Society
- Bath Building Society
- Loughborough Building Society
- Progressive Building Society
- Kent Reliance
- Chorley Building Society
- Generation Home
- Barclays
- Norton Home Loans
- Clydesdale Bank
Students can get a mortgage while still studying, but they usually need a guarantor. A guarantor can be a direct family member or legal guardian who already owns a house, lives in the UK, and has a permanent right to reside. The guarantor will be responsible for the loan if the student misses any payments.
University mortgages can be a great stepping stone for students wanting to climb the property ladder. They can also be a great way to make an income and help a child on the property ladder. Students can earn from the property by renting out rooms to other students, making flying the nest easier.
Cons of getting a mortgage as a university student
University mortgages are still in their infancy, and only a handful of lenders offer them. The rates for student mortgages are generally higher than regular mortgages, and interest rates are relatively high, ranging between 2% and 3% above the Bank of England base rate.
There are strict criteria that must be fulfilled for a student to be eligible for a student mortgage. For example, the student must have at least one full academic year left on their course when the mortgage begins. They must also be a UK resident and at least 18 years old.
Some people argue that university students should not get a mortgage. They may not have any security to put against the mortgage or show that they can afford the repayments. Loans do not count as income, and even with an income, there is a minimum income to be considered for a mortgage.
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Alternatives
While it is possible for university students to get a mortgage, the options are limited, and there are several alternative options to consider.
Guarantor Mortgage
One alternative is to take out a guarantor mortgage, where a family member acts as a guarantor and provides financial backing. The guarantor must be a direct family member or legal guardian who owns a house, lives in the UK, and has the permanent right to reside. The maximum age of the guarantor at the end of the mortgage term varies between 75 and 80, depending on the lender. It is important to note that the guarantor will be responsible for repayments if the student misses any.
Buy-for-University Scheme
Another option is the buy-for-university scheme, where students can get a 100% loan-to-value (LTV) mortgage with the support of family members, usually parents. The student's name is on the deeds, and they can rent out rooms to cover the repayments. This scheme comes with stipulations about the property's location and the number of rooms, and interest rates are relatively high.
Gifted Deposit
If your parents can gift you a mortgage deposit, you may be able to buy a student property as your first home, although not all lenders will allow this. Mortgage rates are often better with a gifted deposit, so it is worth checking the options before applying.
Student Income and Savings
Some lenders accept student income through bursaries and stipends, although not all do. Having a larger deposit or savings will make more mortgage lenders willing to consider your application.
Joint Mortgage and Sole Proprietor Products
Some lenders offer joint mortgage and sole proprietor products, where the student's parents act as partners in the mortgage agreement. However, this option requires the parents to meet the lending criteria of the lender.
Using a Broker
Using a broker can be beneficial as they can identify the best lender for your specific needs and circumstances. They can guide you through the process and help you find the best deal.
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Frequently asked questions
Yes, it is possible for university students to get a mortgage, but it is a complicated process and there are limited options available. University students can get a mortgage while studying, but usually need a guarantor.
A guarantor mortgage is a loan taken out with the financial backing of a close family member. The guarantor must be a direct family member or legal guardian who already owns a house, lives in the UK, and has the permanent right to reside.
A 'buy for university' scheme is a mortgage with 100% loan-to-value (LTV) that is supported by family members, usually parents. The student's name is on the deeds, and they can rent out rooms to cover the repayments. This option has a long list of stipulations about the property's location and the number of rooms. Interest rates are high, and a fixed rate is not available.
100% LTV mortgages are high-risk. If the property drops in value, you may struggle to remortgage or settle the mortgage balance if you decide to sell. You risk losing any savings you've deposited as security and could lose your home if you've provided equity as collateral.
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