Buying a property could be more attainable than you first thought
As rents in student cities rise and the quality of accommodation decreases, purchasing a property has become increasingly popular for some students in recent years. Instead of handing their student loan over to landlords, many students have decided to buy for themselves.
In the right circumstances, buying a property as a student could be more attainable than you first thought. There are a few different ways students can purchase a property. But most lenders will require that a buyer has at least two years’ consecutive employment and a regular income to buy a property.
FUTURE LOAN
There are four main routes to homeownership for students. Three options involve a parent or family member acting as a guarantor by supporting your mortgage application or supporting the purchase outright, and one relies on a student having sufficient income to buy alone – likely through a stipend.
First of all, it’s important to note that if you have a student loan this can be accepted by lenders as income to support your mortgage repayments. However, if you choose to purchase as a student with a standard mortgage, the lender may take future loan repayments into account in your affordability assessment, which could reduce the amount you could borrow.
ADDITIONAL INCOME
If you are a PhD student who receives a stipend income, for example, a nominal sum of money paid to cover your basic costs, there are other options although lenders are more limited.
If you are applying for a mortgage with a stipend, you can also put down a secondary job to increase the amount you could borrow. If your secondary job requires you to work more than a 40-hour week, this may not be accepted by some lenders. However, some lenders will only accept a stipend as income, if it is supplemented by the additional income.
EXPENSIVE MORTGAGE
As students generally won’t have sufficient income for a standard mortgage to be viable, one popular route is to use an Income Boost mortgage (otherwise known as a ‘joint borrower sole proprietor mortgage’).
An Income Boost is a way of extending your affordability by adding the income of a Booster (most likely a family member) to your mortgage application. This increases the amount that you can borrow, meaning you may be able to afford a more expensive mortgage.
AFFORDABILITY CHECKS
The Booster is not added to the property deeds, so you remain the sole owner. This means that you will still benefit from stamp duty relief as a first-time buyer. However, both you and the Booster are responsible for making the monthly repayments and repaying the mortgage in full. You will have to have at least a 5% deposit and must be aged 18 or over to apply. Both you and the Booster will have to pass affordability checks to make sure the mortgage is affordable.
MORTGAGE APPLICATION
This means that, whilst the Booster can add their salary to the mortgage application, the lender will take into account any major outgoings or credit commitments to calculate the maximum loan they can offer you.
Any money the student makes from part-time jobs alongside student maintenance can be accepted as income for the buyer. A buy-for-uni mortgage (basically a student mortgage) means that you can rent out the spare rooms in the property to contribute towards the monthly mortgage repayment. In these cases, you have to live in the property too.
LEGAL CHARGE
You can borrow the full amount of the purchase price, so you don’t need to put down a deposit. This can be useful if you don’t have the opportunity to save. However, if you do need to borrow 100% of the property price, your family members must either provide a cash deposit of at least 20% or let the lender put a legal charge on their property for a fixed sum.
A legal charge allows a lender to secure the money that they have lent, so if either of you were unable to pay the mortgage, the lender can force the family member to sell their property to cover this.
GUARANTOR’S PROPERTY
The cash deposit will be held in an interest-bearing account, and it cannot be withdrawn until either the value of the mortgage falls below 80% or when the mortgage is paid back. When you leave university, the property can be converted into a standard residential or buy-to-let.
This also applies to the legal charge on the guarantor’s property. If your parents want to help you to get on the property ladder by any means, they could simply buy you a home using a traditional residential mortgage or buy-to-let. If your parents buy you a property whilst you are at university, they can choose to transfer the property to your name when you can afford to support it yourself.
TAX IMPLICATIONS
However, your parent may also be liable for Capital Gains Tax (CGT), so it’s important you both receive professional financial advice first. Buying a second home can also have expensive tax implications for your parents.
They will have to pay an additional 3% stamp duty on top of the standard rate if they already own a home. Whilst you are still living at university, you can pay your parent rent, and then take over the mortgage when you are ready.
>> TIME TO START CONSIDERING YOUR MORTGAGE OPTIONS? <<
If you want to start exploring your remortgaging possibilities, we’re here to discuss your options. Contact Cedar Crest Ltd – telephone UK T: +44 (0) 203 883 1017, HK T: +852 6645 4462 – email info@cedar-crest.co.uk.
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