Make the grade, and you'll pass directly to home ownership
Sunday 23 April 2006
Most students won't have a full-time job, and those under 21 are unlikely to have built up any savings. At their age, who can blame them?
But that hasn't stopped one lender from launching a new mortgage specifically for undergraduates to help them get a foot on the property ladder.
The mortgage - called Buy for Uni - from Bath building society is exclusively for university students, and aims to help re-ignite demand among first-timer buyers by offering 100 per cent loans.
First-timers make up only 38 per cent of UK homebuyers at present, according to the Council of Mortgage Lenders, compared with a 45-50 per cent longer-term average.
But students shouldn't get too excited at the prospect of instant home ownership: the new deal has strings attached.
Since most students don't receive a salary, loan affordability is calculated on rental income from no more than four rooms in the house - and the property mustn't be more than 10 miles from campus.
Critically, the total rent must be at least 7 per cent of the original loan. (This figure is based on the Bank of England base rate plus 2.5 per cent, and will therefore rise if rates go up.) To borrow £150,000, for example, an income of £875 a month would be required from all rooms, including that of the borrower, who must pay rent too.
In addition, both parents of the student must act as guarantors for the entire loan. On top of this, if the loan exceeds 75 per cent of the value of the property, the mortgage must also be secured against 25 per cent of the parents' property.
This extra security is in place of the more usual mortgage indemnity guarantee, a fee some lenders charge on mortgages that represent a high percentage of the property value.
Finally, the building society does not accept mortgage repayments from a student current account. They must come from one linked to a parent's salary.
If students meet the above criteria, what rates can they expect to pay? The mortgage is available on a two- or three-year discount basis, both priced at 5.4 per cent before reverting back to the lender's standard variable rate (currently 6.5 per cent).
Tie-ins run for the same period as the respective deals; if a student is taking a longer course - a degree in veterinary medicine, for example - deals can be arranged for that length of time.
On graduation, the property can be retained as a buy-to-let investment under the same lender. In this case, the graduate must be earning at least £15,000 (with the same rent "percentage" requirement).
Alternatively, the graduate can continue living in the property with other student sharers. Here, salary is irrelevant providing the rental income, guarantors and potential 25 per cent collateral charge continue to stack up.
Although Buy for Uni is available only directly from the lender, mortgage brokers broadly support it. "Any opportunity to get on the ladder is welcome," says James Cotton at broker London & Country. "But a deal like this should be thought through carefully - 18 is young to take on a mortgage commitment, especially with a 100 per cent loan."
James Langsford, 28, is a mature student at the University of Bath taking a degree in business administration. He and his fiancée, Dawn Earp, 30 - also a student - are househunting and hope to get a Buy for Uni loan.
"We are looking at spending £160,000 for a three-bed house, sharing one room and letting two out," James says. "We can't see any other way of getting on the ladder in the near future."
Independent Partners: Get fee-free expert mortgage advice and find the right mortgage deal for you.
Pensioners to be told how long they have left to live to help them plan their finances
Erudio Student Loans: Reader has cash wrongly taken from account by debt collector
Row goes on over deferred student loans
How to start your own internet business
The whole truth about legal fees: Conveyancing can knock a big hole in home-buyers' finances. To get the best deal you must cross-examine solicitors about their charges, says Sue Fieldman
- 1 Poveglia: 'World's most haunted island' up for sale...is anyone brave enough to buy it?
- 2 Babies cry at night to stop mothers procreating, scientists claim
- 3 24 people applied for the 'world's toughest job', here are their interviews
- 4 Andre Johnson: Wu-Tang Clan-discovered rapper severed his penis and jumped from LA building
- 5 Mrs Doubtfire 2: Robin Williams set to star in sequel to 1993 comedy
The food poverty scandal that shames Britain: Nearly 1m people rely on handouts to eat – and benefit reforms may be to blame
US Navy christens huge $3 billion destroyer ship USS Zumwalt that appears as a fishing boat on enemy radar
Scottish independence: It is the English who should be on their knees, begging the Scots to vote ‘No’
Nigel Farage fatigue? Half of voters ‘immune’ to Ukip’s appeal
Nigel Farage on Have I Got News For You: Ukip leader ridiculed over expenses and party 'fruitcakes'
Nigel Farage: I’m taking on the status quo, and the Establishment’s fighting back
iJobs Money & Business
£150.00 per week: QA Apprenticeships: This company has been providing on site ...
£221.25 per week: QA Apprenticeships: This company is a well established Inter...
£40000 - £50000 per annum: Harrington Starr: Client Relationship Manager - SQL...
£35000 - £50000 per annum: Pro-Recruitment Group: Take your chance to join the...
Day In a Page
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000
A 17th century four-bedroom house, with open fireplaces, cellar and pool, £600,000
A three-bedroom, coach house with luxury open-plan living space and contemporary breakfast bar
A newly refurbished one-bedroom flat in the heart of Mayfair, close to Grosvenor Square
A charming four-bedroom house overlooking Burleigh Square Park, close to Thorpe Bay
A three-bedroom farmhouse with a large inglenook fireplace and exposed beams
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms
A two-bedroom detached house with ensuite bathrooms and a sun-drenched decked terrace, £750,000
A modern and spacious two-bedroom, penthouse flat with two bathrooms in a prestigious development
A beautifully renovated five-bedroom terrace with three reception rooms and a courtyard garden, £700,000
A four-bedroom period house which has been extended to provide almost 2,500sq ft of living space, £675,000
A pretty three-bedroom Georgian home with a 22ft drawing room and a master suite with a balcony, £525,000
A substanstial family home with five bedrooms and landscaped gardens in the much sought-after Branksome Park area
A well-presented three-bedroom house with front and rear gardens, close to White City station, £475,000
A handsome five-bedroom house in a sought-after location close to the city centre
A five-bedroom country home with valley views, equestrian stables and 27 acres of land, £725,000
A six-bedroom farm house with separate, detached cottages and 371 acres of land
A two-bedroom cottage with parquet floors, chunky beams and an open fireplace
A three-bedrrom flat with 2,733sq feet of living space, a beautiful private garden and 15 acres of communal grounds