Kevin Gray column
Student mortgages can be a sensible option
Kevin Gray, CEO of Bath Building Society
As the parent of two children of university age, I know only too well the cost of student accommodation in campus towns like Bath. The reality is that the student loans system is not sufficient to support our young people whilst they are at college. The high cost of renting means that in order to survive, students need to either get a job or get financial support from their parents, or both. Over a typical three-year course, a parent could easily expect to have to support their student child to the tune of between £15k and £20k just to put a roof over their head. That is serious money, all of which goes to landlords and is thus ‘dead money’.
Is there a way of providing accommodation for students in university towns that also gives students some longer-term benefits from their parental support? The answer is yes…..the Bath Building Society (BBS) ‘Buy for Uni’ (BFU) mortgage. This product permits a student to borrow up to 100% of a property’s value on an interest only basis. This might seem a little odd, or even at little mad, bearing in mind that students do not have any substantial earned income to support a mortgage. This is where the so called ‘Bank of Mum and Dad’ comes in. BFU mortgages are granted on a ‘joint borrower/sole proprietor’ basis where a parent of a student and the student themselves borrow the mortgage monies together but where the property legally remains solely in the name of the student. By structuring the purchase this way, parental income can be used to support the affordability test for a BFU loan. Furthermore, any potential income that is available by renting out spare bedrooms can also be used to support the mortgage. This is tax efficient as the government’s Rent a Room Scheme permits £7,500 of tax-free income to be earned from letting out spare, furnished accommodation in a person’s home. The Society also requires a collateral charge against the parental home to reduce the effective loan to value to 80%. Alternatively, cash can also be provided as collateral.
BBS has been advancing BFU mortgages for over 12 years and it is recognised as being an expert in this field. At the end of a student’s formal studies they have normally accrued some equity in their property due to house price increases. Ex-students typically then choose one of a number of future paths with regards to their property. They often transfer onto a residential mortgage rate and live in the property. They also frequently transfer onto a Buy-to-Let mortgage and let the property out. Alternatively, they often sell their properties and move on somewhere else.
The BFU mortgage is an excellent way for parents to help their offspring get onto the housing ladder. If you think a Buy for Uni mortgage would be of interest to your family then why not visit our website www.bathbuildingsociety.co.uk for more information or give us a call on 01225 475730.
15 Queen Square, Bath BA1 2HN
Tel: 01225 475730