Across the UK there are just over 2.3 million students in higher education studying on a mix of undergraduate, postgraduate, full-time and part-time. Over three-quarters, 1.84 million are students studying on full-time or sandwich courses (often a year in industry or abroad) who require accommodation while they undertake their studies.
One in five students choose to live at home, a figure that has remained unchanged over the past three years. One in six however (17%) now live in their own residence (a property which may be owned or rented by them), up from 15% in 2014/15. In addition, nearly 30% of students, mainly those in their second or subsequent years of study live in rented accommodation (temporary arrangement, such as a yearly house share). In the 2017/2018 academic year 850,000 students either lived in their own residence or rented accommodation.
Buy for Uni mortgages have recently entered the marketplace and are now offered by three Building Societies. With a large student population, especially those on longer courses, they may well prove a winner. They allow students to buy a property while at university and pay the mortgage with the rent they charge other students.
Students don’t need a deposit, they can borrow 100% of the property value. They also pay little or no stamp duty, there is no capital gains tax on sale, rental income is likely to be free of tax because the student has their own personal tax allowance (£12,500) and the tax-free rent-a-room allowance (£7,500). In effect, it’s a large tax-free income!
So, what’s the catch? The 25% deposit required by lenders is put against the parents’ property. They don’t have to pay anything upfront but are liable for the entire loan if the regular payments stop. The interest rate on the loans is usually high, around 4.8% (this compares to the Bank of England current average mortgage rate of 2.4%, and if base rates rise these loans could become quite costly. The minimum house value a student can purchase is between £90-£125k and the maximum is between £300-£400k. The house cannot have more than three bedrooms and no Houses of Multiple Occupation (HMOs) are allowed.
With an active, and a ever growing audience, data from the Higher Education Statistics Agency (HESA) indicates the number of students studying on full-time courses in higher education has increased by 8.7% over the past three years, will we see more students accessing the housing ladder, becoming landlords to their friends and colleagues?
Working with property professionals for over 20 years providing advice and services to all property investors.