We met up with a lender the other day and they have quite a unique Buy to Let Mortgage for a University Student offering, which is an option for families considering purchasing a property for their children to live in whilst at university.
What they can do is lend on a property with as little as 0% (as in no cash down) deposit for someone who is going to University and looking to purchase a property. To do this the lender would need to take a charge over a relatives property – or alternatively you can put down a 20% deposit. Further still, it can even be possible to do a mixture of cash deposit and a charge over a property if you do have some deposit but not the full 20% they need to put down.
The applicant is then able to rent out the remaining bedrooms as part of the Mortgage agreement – the rooms do not even need to be let to other students.
The lender would assess the rental income from those other 2 rooms and if the income from the rooms would support the mortgage, that should be sufficient, even if the applicant (Student) has no income from employment.
If it does not pass on just the rental income, the underwriter can look to use any earned income from the applicant (Student) or even a parents income to help support the application. They can be very flexible on both the deposit and the income for affordability purposes.
Indicative Example of Buy to Let Mortgage for a University Student
To give you an idea of how it will work in practice, below is an example of how it could look.
|Repayments (30 year term)||£791|
|Balance after 4 years||£139,980|
Based on the above it will be costing approximately £791 a month. If we assume the average room at a University is £125 per week (£541 per month), that means the mortgage on the face of it is costing £250 a month more than it would to rent a room.
If you then consider that the property is a 3 bedroom house that has 2 rooms to let out at £100 per week (less than the average) that means the rent from the other 2 rooms would be £866 a month (£100 x 2 (2 rooms) x 52 (weeks) / 12 (months)) , that means the rental income is approximately £75 a month more than it would be to rent a room. Added to that, the balance of your mortgage is also coming down each month – approximately £10,000 over 4 years.
At the end of the 4 years, based on the example above, it would have cost £26,000 (£125 x 52 weeks x 4 years) to rent a room.
To own your own home and rent out the rooms, it would be £37,968 (£791 x 12 (months) x 4 (years)) in costs. However this could be offset by the rental income which in this example would have been £41,600 (£100 x 2 (rooms) x 52 (weeks) x 4 (years)).
That leaves a gross profit of £3,632 and a difference of nearly £30,000!
It is important to note that this is before you take in to account house price fluctuations (up and down), the reduction in the mortgage balance, bills, the normal costs of home ownership.
The figures above are for example purposes. The actual figures will depend on your circumstances.
There are pros and cons to this type of product. Financially speaking it looks like it makes absolute sense.
However you have to consider any potential tax implications (for that we recommend speaking to an accountant or tax adviser), there is also the issue of collecting rent and non payment of rent and also what happens when things need repairing on the property?
This is a great product for University students and their parents. It can be a way for you/your child to not only live rent free but also live in a property they own.
They can choose their house mates and pay down the balance of a Mortgage whilst at Uni rather than spending dead money every week/month on rent.
Obviously we need to consider any tax implications and the fact that to some extent it will be like running a business whilst studying for a degree.
It will not be right for everyone, but it could be good way to get on the property ladder and leave university with less debt than if you were renting.
How can we help?
The University Student Buy to Let Mortgage facilitates those parents of University Students whom wish to support their children that little bit extra through Uni, with a property of their own and perhaps a property for them as a future investment or a home after graduation.
Hopefully you can tell from this article that we have tried to give you the plus points and the negative points of this type of purchase.
We are not here to try and sell you products but to inform and advise and we thought the Buy to Let Mortgage for a University Student is a great product for some families.
if you want to know more get in touch and we can have a chat about your options and see if this is right for you or if there are alternatives that may be more suited.
We are happy to speak to the person going to Uni or the parent if you would like to call on behalf of your son/daughter.