Students targeted in new 'Buy for Uni' mortgage
An innovative new mortgage product has been launched which will help university students to get onto the property ladder. The 'Buy for Uni' mortgage allows students to buy a property near their place of study, as long as they can provide additional security from family.
The Loughborough Building Society has become the second mutual in the UK to offer a mortgage deal designed for university students. The lender joins Bath Building Society in offering a niche product which allows students to become landlords as long as the mortgage can be supported by immediate family.
Under the Loughborough BS deal, students who are over 18 and in higher education in England and Wales can get a mortgage for up to £300,000 as long as the property is within ten miles of where they study.
Parents, step-parents or grandparents can provide security in the form of cash or equity if the loan is more than 80% of the new purchase price. Rates range from 4.54% to 4.74% depending on what security is provided and the term of the mortgage.
Chief executive of the Loughborough, Gary Brebner, says the mortgage acts as a 'gateway product' to get on the property ladder. On completion, the student essentially becomes a landlord by earning money towards the mortgage repayments from renting out their spare rooms.
Brebner says: “What you want is that the rental income … covers more than the commitment, so if there is a rise in interest rates it will cover it. Or that the guarantor says ‘Well, yes, if interest rates did go up, or there was a void in rent, I the guarantor will pay that rent instead’.”
Student bodies have urged undergraduates to be cautious when considering such a product. Shelley Asquith, vice president for welfare at the National Union of Students, remarks: “Students should be careful of offers that seem ‘too good to be true’. Buying a house will usually involve significant hidden costs for deposits, agents and surveyors, even if the monthly payments seem to compare well with rented properties.”
While the Loughborough BS mortgage is a new proposition, Bath Building Society has been offering a similar scheme for nine years, with these loans accounting for around 10% of its mortgage business.
Chief executive Dick Jenkins says that in most instances the rental income goes 'a long way towards' covering the repayments: “We do come across the occasional person who thinks that we are offering them an enormous amount of beer money, but we obviously disabuse them of that notion quickly. Most people are pretty serious and switched on and tend to come from reasonably well-off families because we do need to take a collateral charge over mum and dad’s property to make that product work, so there has to be some equity in the parents’ property.
“We are not encouraging people to take on debt that they don’t understand or they wouldn’t understand their responsibilities towards. We are quite a cautious lender.”