April 2024
Student mortgage in April 2024
Rents for students are notoriously high, especially given the standard of property available. Many students question whether instead of paying off their landlord’s mortgage, they should save money and get a mortgage and be their own landlord. This might be both cheaper in the longer term, and mean that you get your own place.
Topics that you will find covered on this page
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How does a student mortgage work?
The student will buy a house in their own name, borrowing up to 100% of the value of the property. They then rent out rooms on the mortgage to pay the mortgage repayments and other debts. The parents support the mortgage, acting as a guarantor or providing security where the student does not have enough money to meet the deposit.
Who are student mortgages for?
To be eligible for a student mortgage, you must be over the age of 18 and have at least two years left on your higher education course. You generally need to have a sum of money available, perhaps from inheritance or a savings account to use for a deposit. Mortgage advice can help you work out if you fit the strict criteria to get a mortgage.
What are the challenges to getting a mortgage as a student?
There are three main challenges to many students getting mortgages:
- Generally students in full time education do not have a full time job, so lenders are less confident they will get the money you borrow back
- Students are generally young so do not have a detailed credit history and therefore good credit rating
- It is unlikely a student will have saved enough money for a deposit
What are the advantages of getting a student mortgage?
- You avoid paying high rental fees in student properties
- You get to own your own home and take your first step on the property ladder
- You could warm money through renting out the other rooms
What are the disadvantages of getting a mortgage as a student?
- It is a vast responsibility to act as a landlord, because the property has to be kept up to a certain standard and you have to pay for maintenance
- It is a big commitment, and selling a house when you graduate can be expensive or time consuming
- Mortgage debt might be limiting if you do not have an income after graduating
What if I decide to sell the house after graduating?
Student mortgages can be helpful even where you plan on moving away after graduation. This is because you can still sell the house and use the capital to buy a place elsewhere. You still will have saved money and will be on the property ladder. You should get mortgage advice to work out if this is worthwhile
What properties can you get a student mortgage on?
Generally, student mortgage providers will ask that the property is less than 10 miles from your university, and the house is 3-4 bedrooms. You can rent out the rooms you are not using. However, normally the value has to be below £300,000 and the term must be less than five years.
How do you qualify for a student mortgage?
The requirements for Loughborough Building Society student mortgages, for example, are:
- Buying a property that is not an ex-council flat or a studio
- Go to a university not in London
- Have a maximum of two housemates
- Buy a property under 10 miles from your university
- Have a minimum of one year left on your course.
How do you get a student mortgage?
More and more lenders are offering student lenders, however it might be hard to get one without a full-time job, as lenders will view you as being risky.
How can I increase my prospects of getting a student mortgage?
Beyond working full-time, you can increase your prospects by putting a large deposit down, or getting a mortgage guarantor.
What deposit will most lenders want?
Deposits make you less risky to mortgage providers. Most lenders will want 10-15%. However, if you do not have this amount available, a specialist mortgage broker might be able to give you financial advice to help you find the best mortgage deal and interest rates for your requirements.
"Rents for students are notoriously high, especially given the standard of property available."
Can you get a student mortgage without putting down a deposit?
This is called an 100% Loan to Value (LTV) mortgage deal. Occasionally this is possible, but your mortgage payments are likely to be very high, so you will need a strong income stream, or a guarantor providing a high level of security.
What are the problems with 100% LTV mortgages?
Beyond high mortgage repayments, they are risky because if the property value falls, you might be in negative equity. Such, you will struggle remortgaging or covering the loan if you later sell. As a result, you might lose any savings you have put as security, or if the security is the parental home, you might lose your home.
What is a guarantor?
This is someone who will cover the mortgage if for some reason you cannot cover the repayments on your mortgage, like a guardian or any other family members. Lenders are normally willing to loan more money if you have a guarantor.
Who is eligible to be a mortgage guarantor?
Generally a guarantor is a legal guardian. They must be under the maximum age of 65, have property within the UK and be in residence in the UK. They need to be able to evidence that they have a minimum sustainable income to cover the mortgage costs if required. If both parents live together, some lenders will ask that both of them act as the guarantor.
Why do I need a guarantor?
The guarantee provides security for the student mortgage. Also, because students tend to have very minimal credit information available, the guarantor will provide a credit score. Many lenders require a guarantor, and will consider the guarantor’s income.
Who provides a student mortgage?
There are more and more banks and building societies offering student mortgage products, but this form of mortgage is still in its infancy so there are fewer choices than there are for an ordinary residential mortgage. Regardless, many of the big brands provide student mortgages, like Nationwide, Barclays, TSB, Santander, Halifax and Virgin Money. You should ensure to choose a company regulated by the financial conduct authority. You can get the best deal on a mortgage as a student by getting advice from a mortgage advisor.
What is offered by different providers?
This is what is offered by an assortment of lenders:
- Loughborough Building Society offers buy-for-uni mortgages where the rent from the rooms covers the monthly rent repayments
- Halifax has a ‘family boost mortgage’ which grants an 100% mortgage where a family member can act as security
- Vernon Building Society, apparently, according to The Sun offers the lowest priced buy-for-uni mortgage
- Scottish Building Society offers guarantor mortgages with a loan to value of up to 90%
Should I use a mortgage broker?
Mortgage brokers are experienced advisors who can help you find the best interest rates and deals. They can help you deal with your own set of circumstances, like having a bad credit history. Just because a mortgage works for other students does not mean it is right for you, and mortgage brokers can find the right deal.
How will student debt affect my mortgage?
This can sometimes impact whether or not a student mortgage provider will let you get a mortgage. However, this is less important than proving you have an income or a guarantor.
Can a PHD student get a mortgage?
The same rules will normally apply to PHD students about guarantors, monthly repayments and deposits.
Can my PHD stipend be used for a mortgage?
It is challenging to use a PHD stipend for a mortgage, as the stipend is for a fixed amount of time, and after this you will struggle to guarantee an income. There are exceptions if you get another income during your PHD, like being a teacher or researcher, or if you have work lined up for after your PHD. You should get expert mortgage advice to find out more about this.
Can mature students get a mortgage?
This will be considered the same as any other student mortgages. A broker can give you mortgage advice on what offers are suited to your situation.
Can international students get a student mortgage?
Mortgage providers will consider your finances and credit history, not the country you grew up in. The main challenge is likely to be getting a guarantor, as these have to be a direct family member or legal guardian who owns property in the UK and has a permanent right to reside.
What is a buy-for-uni mortgage?
This is basically a buy to let mortgage specially designed for students. This means you buy the house with a student mortgage and then rent out the rooms to cover the mortgage monthly payments. This helps you get on the property ladder, as long as you have a good guarantor.
What are the difficulties with a buy for uni mortgage?
It can be challenging to act as a landlord, especially for your friends. Additionally, the interest rate for this type of mortgage is generally high, in 2019 they were 4.44%-4.99%. You should get mortgage advice before taking on this responsibility.
Who offers buy for uni mortgages?
Loughborough Building Society and Bath Building Society both offer buy-for-uni mortgages. For Loughborough BS, students can borrow a maximum of 100% of the property value, up to £300,000. You can get either a three year term or a five year term, at a 4.99% discounted variable rate. It costs £999 to set up the loan.
What is a variable mortgage?
Most student mortgages have an initial rate period, then move to a standard variable rate, which for Bath BS is 4.9%. There is often an interest rate floor which is the limit on how low your interest rate can fall. All of this should be discussed before you sign a mortgage agreement to ensure it is right for you.
What is a joint borrower sole proprietor?
This is where a borrower adds either one or both of their parents or guardians to their mortgage application as joint borrowers. The parent will not be on the title deeds, but their income will be considered in deciding if the mortgage will be granted. Buy for university mortgages might lead to tax breaks.
What do parents have to do to help their child get a buy for uni mortgage?
Where a child is borrowing over 80% of the property value, the parents, or legal guardians will have to give even more security. This can be done through putting cash into an assisted purchase deposit guarantee account where it is used as collateral and does not earn interest. Alternatively, a family member can put up their home as collateral on the loan, granting the lender a legal charge.
What happens with a buy for uni mortgage when you finish university?
Buy for uni mortgages finish when your degree ends. You can either sell the property, or remortgage it on a different deal. You should seek mortgage advice to help you plan for the future.
Are students required to pay for stamp duty?
Where students buy their first property, they will not have to pay stamp duty. Just because a parent is acting as a guarantor, does not mean it classifies as a second home. However, if the parents are buying the property as a buy to let, they will have to pay stamp duty.
What should I do before applying for student mortgages?
There are multiple considerations, lie:
- Research the properties around the university, and see whether you could find anywhere worth under £300,000
- Get mortgage advice, and see if there are any lenders who would grant you home ownership
- Calculate what you can afford and your income
- Speak to your parents and see if they are willing to provide you money towards the deposit or are willing to act as the guarantors for repayments on your mortgage
- Plan how you will carry on paying the money
Frequently Asked Questions
How does a student mortgage work?
The student will buy a house in their own name, borrowing up to 100% of the value of the property.
Who are student mortgages for?
To be eligible for a student mortgage, you must be over the age of 18 and have at least two years left on your higher education course.
What if I decide to sell the house after graduating?
Student mortgages can be helpful even where you plan on moving away after graduation. This is because you can still sell the house and use the capital to buy a place elsewhere.
How do you get a student mortgage?
More and more lenders are offering student lenders, however it might be hard to get one without a full-time job, as lenders will view you as being risky.
