Student Landlords Buy Investment Properties With Buy for Uni 100 percentage Mortgages
Student years are traditionally a time of struggling to make ends meet on, if you’re lucky, a modest allowance from home, student loans that will have to paid back and ‘character building’ (read drudgery) part time jobs. But some students are actually coming out of university with investment properties that they have made enough profit on to either cover the repayment of student loans or take a big chunk out of them. And in the meanwhile, avoid living in squalor and having to argue over the return of deposits every summer. The secret? ‘Buy for Uni’ mortgages.
The niche mortgage product is offered by several building societies and specialist buy-to-let lenders and can be for up to 100% of a property’s value. Parents who can afford it sometimes acquire investment properties that double up as their offspring’s student accommodation. However, the advantage of a student themselves becoming the owner of an investment property can be numerous. As a first time buyer they will avoid stamp duty, financial management will be learned and responsibility through wisely choosing flatmates and having to then collect rent from them regularly. Finally, and by no means least significantly, all being well, a student with an investment property might actually come out of university more financially secure than when having started it.
Of course, it depends upon the property market but there is a good chance the property will be worth more than it was at the beginning of the course. And if it’s not, it can still be continued to be rented out after the student has moved on, gradually paying off the mortgage and waiting for a market upturn. At the very least, a student landlord is already on the property ladder and will subsequently find it much easier to acquire a new property wherever they begin their professional career or at the point they decide to do so.
So what are the drawbacks? If every student could get a 100% mortgage and rent the spare rooms in an apartment or house to friends, covering the mortgage, why don’t they? Firstly, as may be expected on a 100% mortgage for an individual who doesn’t have a regular, fixed income, buy for uni mortgages need to be secured by the student’s parents or guardians, who need to qualify as a guarantor. This can usually be in the form of either cash or equity taken out against another property such as the family home. Interest rates are also usually approaching 5%, higher than standard mortgages due to the niche nature of the product. Usually buy for uni mortgages are on an interest only basis so the rent received from letting the spare rooms should cover the mortgage interest payments, including over potentially vacant summer months. If not, the guarantor will have to meet the shortfall.
There are also additional costs involved. Set up fees are often around £1000 and there are also surveyor and agent fees as well as potentially a deposit if the student cannot secure a 100% mortgage. Ultimately, the guarantor(s) are taking on the financial risk and the commitment is not for everyone as well as being reliant on family circumstances allowing. However, for those who understand what they are taking on, both student and guarantor, a buy for uni mortgage can turn out be a very smart financial decision. That is particularly the case in university towns where house price growth is still healthy, such as in parts of the Midlands, northern England and Scotland.
Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.
There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.