A new mortgage deal from the Loughborough Building Society lets students take on the mantle of landlord while they study for their degree. The ‘Buy for Uni mortgage offers 100% finance towards a property worth up to £300k. It mirrors a product sold through the Bath Building Society, but as tempting as it might sound to students who are keen to take a step on the property ladder, it should be approached with caution.
Student Mortgage Terms and Conditions
Any student aged 18 and over is eligible. The property must be located within 10 miles of the university where they are studying and a guarantor must be provided for mortgages with a LTV of 80% or more. The mortgage will revert back to a standard mortgage after three or four years.
Since most students can’t afford mortgage payments, the only way they can earn enough money is by sub-letting rooms to other students. This effectively turns students into landlords. In theory this is fine, but if something goes wrong, for example interest rates rise or the student has a problem collecting rent, the guarantor will be forced to step in and cover the mortgage payments.
The Stress Test
Some critics have described the mortgages as ‘elitist’, as only parents with substantial equity in their home will be able to act as guarantor. Rental income earned from subletting rooms also needs to be enough to cover the mortgage payments plus a bit extra.