New ‘buy-for uni’ mortgage deals are being targeted at students as young as 18.
Under the buy-for-uni deal students in higher education in England and Wales can get a loan for up to £300,000, providing the property is within 10 miles of where they study.
However, they must be able to offer a guarantor from their immediate family – parents, step-parents or grandparents – who will provide security either in cash or against the value of their own property.
Although the loans are being marketed as a gateway onto the property ladder and a way of ensuring that student loans are not ploughed as ‘dead money’ into rental properties, some student groups are warning against the pitfalls of signing up to a mortgage at such an early age.
Shelly Asquith, Vice President for Welfare with the National Union of Students said: “Students should be careful of offers that seem ‘too good to be true’. Buying a house will usually involve significant hidden costs for deposits, agents and surveyors, even if the monthly payments seem to compare well with rented properties.”
Andrew Skinner, a Partner with Palmers, who is head of the firm’s Debt, Possession and Insolvency Department, said: “On the face of it, the offer may seem attractive, but as these loans are niche products, the interest rates are often higher than normal first time buyer mortgage deals. The lenders currently marketing these buy-for-uni products appear to be offering them on variable rates only which means there is less stability, particularly if a student is on a low fixed income.
“Added to this, a family member is required to act as a guarantor. This leaves them open to the risk of either a substantial financial loss or, in a worst case scenario, the repossession of their own home if the student is unable to continue with the mortgage payments and defaults.
Given that most students cannot know with certainty that they will be able to leave university and walk straight into a job, the guarantor also needs to consider the possibility that they may need to bridge the mortgage payments until the student is able to find employment and meet the ongoing mortgage payments.
“Whilst the buy-for-uni route may be right for some families, particularly given the fact that the usual second home stamp duty surcharge is avoided because the property will be in the student’s name, prospective buyers need to do the maths and make sure that that the property doesn’t end up being an albatross around the necks of both the family and the student.”
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