There’s a wealth of products available to help the Bank of Mum and Dad support their children onto the housing ladder, but buy for uni mortgages take a different approach.
The borrowing is supported by parents being a joint-borrower on the mortgage and providing additional security if necessary.
The parents may help by depositing cash in an account with the lender, or by a 2nd charge on their own home as security against the mortgage, in lieu of a deposit.
As a broker, what else do you need to know about these innovative mortgage products?
Key facts for brokers:
- Not mass market: While buy for uni products are not volume mortgages, they are particularly useful to university students whose parents have both the means and the desire to support them onto the property ladder.
- No deposit needed: It’s possible to borrow 100% on a buy for uni mortgage. Parents can help their children buy a home without having to directly fund a deposit, by becoming a joint borrower on the mortgage and guaranteeing 20% of the mortgage with a collateral charge on a cash deposit or a charge on their own property.
- Affordability: Both the borrower’s income, including the expected rental income, is considered, as well as the parents’ disposable income and assets. Affordability is assessed taking all these factors into account.
- No Stamp Duty payable: Vernon’s Buy for Uni mortgage is taken as a joint borrower, single title arrangement. This means that, while the parents sign up to be jointly responsible for the mortgage, they won’t own the property. A benefit is that, if the student is a first-time buyer, they aren’t liable to pay Stamp Duty up to £500,000.
- They need the correct home insurance cover: Your client will need to tell their buildings and contents insurer that they are letting the spare rooms to tenants to ensure they have the correct cover. They may require a specific landlord insurance policy.
- Save on student rent: In many cases, parents fund their children’s rent throughout their university course, and the costs can be high. With Buy for Uni, the student may not have to pay rent. They become a landlord not a tenant, generating rental income from spare rooms to help cover their mortgage repayments.
- Flexible future options: On graduation, Vernon’s Buy for Uni mortgage can be transferred to a residential mortgage if the student wants to remain in the property as their home and can afford the repayments, this can be done with no extra payments as we do not charge ERC's on these products. If they meet the requirements, they could convert to a buy-to-let mortgage if they prefer to move elsewhere themselves or can sell the property.
- Parental risk: As joint borrowers, the parents need full disclosure of their liability. If the student doesn’t keep up with payments the parents share responsibility. In the worst-case scenario, the property could be repossessed and sold to clear the debt. And if it doesn’t cover it, the parents are responsible for any shortfall which would include any collateral or charge being at risk.
Find out more
Parents support the repayments as joint borrowers and a minimum 20% of the mortgage should be covered, either as a deposit, backed by cash held in a Vernon savings account or a charge held over their own property.
Find out more about our Buy for Uni mortgage by calling our broker support team on 0161 429 4327