Some lenders are looking at students as not just customers for university loans, but also for early mortgages, with the prospect of turning them into young landlords.
After completing their studies many students will look at their bank statements showing them thousands of pounds in debt and saving enough for a deposit on their first home becomes a distant dream, unless, that is, they are already on the ladder.
As long as close relatives can act as a guarantor, then the new “Buy for Uni” mortgage from Loughborough Building Society promises up to 100% financing for a property purchase.
With the Buy for Uni deal students who are over 18 and in higher education can get a loan for up to £300,000, as long as the property is within 10 miles of where they study.
If the loan is more than 80% of the value of the property, they must be backed by a member of their immediate family who can provide security in cash or equity in another property, such as the family home.
It is unlikely that minimum wage shifts in the SU Bar will cover the repayments, so the student instead becomes a landlord, earning money from the spare rooms by renting them out.
Bath Building Society have also been offering a similar product for many years, but both have been met with calls for caution by students’ representatives.
“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,” says Shelly Asquith, vice president for welfare at the National Union of Students.
Interest rates range between 4.54% and 4.74% depending on what security is provided and the length of the mortgage.
The mortgage acts as a gateway product to get students on the property ladder. After the three- or five-year term, when the student will have graduated, it will change into a more traditional mortgage, explains Gary Brebnar, chief executive of the Loughborough Building Society.
He says that they have had substantial interest in the offer, but no money has yet been lent.
Bath BS reports that such loans now account for about 10% of its mortgage business.
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