Their own house of learning
Remember the digs from hell in 'The Young Ones'? They can be avoided, says Abigail Montrose
Wednesday 20 August 1997
According to figures from Barclays Bank, living in hall for one year during term-time only costs pounds 2,100 in Manchester and pounds 2,250 in London. But students living in private accommodation can expect to pay at least pounds 1,000 more than this as they will have to continue paying rent over the holidays.
And, despite the great strides made by university accommodation officers in recent years, many parents are still dismayed about the quality of the flats and houses available.
If this is the case, you might want to consider renting or even buying a home for your son or daughter to live in while at college. Some rental agencies and private landlords will let parents sign a lease even though it is their child who will live there. Parents pay a deposit and rent in advance, and are responsible.
Alternatively, you can buy a property. This may seem extravagant, but given that students may have to fork out up to pounds 10,000 on accommodation for the three years, this can make economic sense. After all, a pounds 50,000 mortgage costs around pounds 3,500 a year, which is around the same amount a student in London can expect to pay for private accommodation.
"It sounds crazy, but it makes sense," says Maureen Stone, who has bought a flat for her daughter Sophie, a student in Birmingham. "We went up to look at student flats a couple of weeks after the A-level results came out, and they were very depressing. So we were looking in an agent's window and saw flats advertised for sale at pounds 40,000 or thereabouts.
"It took most of the next day to find the mortgage - but we think we're actually saving money, and in a couple of years we should be able to sell the place for at least what we paid for it."
For parents who do not have the money to buy a second property outright, there are three ways of raising the funds. First, they can buy the property in their child's name and act as guarantor. The amount a student "buyer" can borrow will be based on the parents' income. The home will be the student's main residence so the loan will attract Miras relief, and there are no capital gains tax implications. Mortgage lenders will typically lend up to 95 per cent of the cost, subject to the usual income multiples less any outstanding mortgage.
So, if the parents have a joint income of pounds 30,000 and an outstanding mortgage of pounds 40,000, most lenders will offer up to a three times income multiple of pounds 90,000, less the pounds 40,000 outstanding mortgage, making the total loan available pounds 50,000.
Second, parents can take out a mortgage in their own name. Once their child has finished college, the parents could sell it or rent it out on a commercial basis. Residential investment property mortgages are available from a handful of home lenders, such as Halifax MSL, Woolwich Direct and Paragon.
In this case, you can typically borrow only up to 75 per cent of the value, and the cost of the loan is 0.25 per cent or more above the lender's standard mortgage rate. Because the property is not for the parents' own occupation, Miras relief is not available.
Rental income from this property is taxable, but the running costs, such as the mortgage interest payments, cost of any repairs and general wear and tear, can be offset against tax. Many parents would, of course, let their children live in the home rent-free, so the issue of rental income would not arise until they rented out the property on a commercial basis.
The third option is for parents who have no outstanding mortgage; they can borrow money for a second property against the equity in their home. They should be able to borrow up to 100 per cent of the value of the second home, providing there is sufficient equity in their own home. Miras relief is not availablen
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