Most people starting at university this September will be thinking about Freshers’ Week, the start of their course and, for many, living away from their parents for the first time.
But thanks to a new mortgage scheme from the Loughborough Building Society, some 18 year-olds could be starting this new chapter of their lives as both homeowners and landlords.
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Up to 100% financing for student landlords
The new scheme put forward by the Loughborough Building Society allows students in higher education in England and Wales to take out a loan for up to £300,000, so long as they are over 18 and the property is within 10 miles of where they study.
The scheme offers up to 100% financing, but requires a close relative - parent, stepparent, or grandparent - to provide security against the loan, either in cash or equity in a property, if the loan comes to more than 80% of the total value of the property.
The interest rates for these mortgages will be between 4.54% and 4.74%, depending on what security is provided and how long the mortgage will run for.
Students to become live-in landlords for their peers
Of course, it’s not realistic to expect students to make their repayments with money made from bar work or other part time jobs slotted in around their course.
In order to pay back the loan, students would rent out rooms in their property to other students at the same university and use rental income for the repayments.
“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,” said Gary Brebner, Chief Executive of the building society, “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.’”
Dangers of hidden costs, say NUS
This scheme is not the first of its kind. The Bath Building Society began offering buy-for-uni mortgages nine years ago, but even though the concept has been around for a while, the National Union of Students had warned against deals 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,” says Shelly Asquith, the NUS’s vice president for welfare.
However, Brebner is keen to assure people that the Loughborough Building Socierty will perform thorough checks to ensure people aren’t taking on unmanagable levels of debt. “When we meet someone we want to be sure that they know what they are doing,” he said, “It might be that their circumstances are not quite right. It might be their guarantor circumstances are not quite right.
“There are going to be a number of things which we will explore as part of this to make sure that anyone who takes this as an alternative to renting, or as an alternative to student accommodation, understands what they are getting into.”
What do you think of the buy-for-uni scheme? Let us know in the comments.