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28 Aug 2019

Buy-for-uni mortgages: should you help your child become a landlord at university?

Learn about the pros and cons of student property investment

Buy-for-uni mortgages allow parents to help their child purchase a property while living at university, but are they really a sensible investment for parents?

The thought of your teenage son or daughter becoming a landlord might be enough to send a shiver up your spine, but for some parents this may be a tax-efficient way of helping them fund their university lifestyle.

Here, we explain the pros and cons of investing in a property for your child while they're studying.

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Buy-to-let for university: can it cut costs?

Student accommodation can be very expensive, with students spending thousands every year just to rent a bedroom in a shared home.

And with maintenance loans barely covering the cost of living in some areas, this can create a real burden on the so-called Bank of Mum and Dad.

This is one of the reasons that some parents seek to invest in a property for their child to live in while studying, potentially saving thousands of pounds that would otherwise be lost to rent.

Unfortunately, not everyone wants to become a landlord, with property investment carrying high costs, especially since the introduction of the stamp duty surcharge and the tapering of mortgage interest tax relief.

One possible alternative to investing yourself could be to help your child buy their own home using a specialist product such as a 'buy for uni' mortgage.

What is a buy-for-uni mortgage?

Buy-for-uni mortgages are essentially a way of helping your child on to the property ladder sooner than you might have expected.

They effectively work like guarantor mortgages. Your child can borrow up to 100% of the property's value, but if they have a deposit of less than 20%, you'll need to pay savings into a special account or use your property as collateral.

As your child will be living in the new property, they can benefit from the first-time buyer stamp duty exemption, which allows them to buy a home for up to £300,000 without paying tax.

The other benefit is your name won't be on the deeds, unlike if you bought a house for your child. This means you won't need to pay the 3% stamp duty surcharge for investors.

How do buy-for-uni mortgages work?

Right now, buy-for-uni deals are offered by two providers - Bath Building Society and Loughborough Building Society.

Loughborough told Which? that in the two years since the product was launched, 68 purchases have been completed.

There are some specific rules that you'll need to adhere to get a loan. Loughborough sets the following parameters:

  • The student must have at least one year left on their course
  • The property being purchased must be within 10 miles of the university
  • The property must have a maximum of three occupants (the student and two flatmates)
  • Buyers can't get a mortgage on ex-local authority flats, studio flats without a separate bedroom or flats in London.

The biggest drawback with these products is their high rates, with Loughborough's three and five-year discount deals ranging from 4.59% to 4.99% and Bath's from 4.44% to 4.89%* - well in excess of the rates on offer for standard buyers or buy-to-let investors.

Should your child become a landlord?

When your child takes out a buy-for-uni mortgage, they'll be becoming a landlord, with all of the associated responsibilities facing buy-to-let investors.

The cornerstone of this, however, will be your money, which will either be used as a deposit or to guarantee the loan. This means you have a tangible interest in the investment succeeding.

And even if you are sure your child has the emotional maturity to become a landlord, there's a good chance you could end up managing the property yourself.

After all, there'll be a range of administrative tasks to do, including vetting tenants and ensuring rent is paid on time, as well as dealing with any repairs or maintenance the property requires. This can be a big burden for a child moving away from home for the first time at 18 or 19 years old.

Buying a property for your child vs buy-for-uni

Buying a property for your childBuy-for-uni mortgage
Stamp dutyIf you already own a home, you'll need to pay the 3% stamp duty surcharge - which can run to thousands of pounds.Your child can benefit from first-time buyer stamp duty relief if the property costs less than £300,000. You won't need to pay additional tax.
LandlordresponsibilitiesYou'll be your child's landlord, responsible for maintenance and admin such as finding tenants and inventories.Your child will be the landlord, but may need your help.
Up-front costsYour deposit, stamp duty and additional fees for services such as surveys and conveyancing.You'll either need to gift your child a 20% deposit or act as a guarantor for their mortgage.
Which homes can you buy?Any.Homes within 10 miles of the university. Ex-local authority properties and some flats may be rejected by lenders.
Mortgage implicationsBuy-to-let mortgage rates are low if you have a deposit of 25%, though many of the cheapest deals come with high up-front fees.High-interest rates.

Does buy-to-let student property investment make sense?

The Which? annual student experience survey found that just 3% of university students lived in their own property, with a further 2% living in a home owned by a family member.

This shows quite how niche student property investment is, with many parents instead choosing to help their child with living expenses at uni.

If you are considering either investing in property yourself or helping your child obtain a buy-for-uni mortgage, consider the following:

  • Is there potential for capital growth?Property investment is a long-term game, with capital growth taking years to accumulate. With this in mind, consider the prospects in your child's university town as you would anywhere else. If there's a stagnant property market or an abundance of student-style accommodation, the long-term gains might not be worth the risk.
  • What happens when your child leaves university?Whichever option you choose, you'll need an exit plan once your child finishes university. As above, weigh up whether the property will be an asset for years to come or a burden you'll be stuck with after three years.
  • Are you better saving the money for a deposit?If you have the money to help your child get on to the property ladder, are you better continuing to save it instead? If you wait until your child is out of university and has a job, they'll be able to get a mortgage on their own terms, and your deposit could help them get a great rate.
  • Do you want the extra responsibility? Many parents fund their child's lifestyle at university, but helping them run a property is a much bigger ask than giving them a few hundred pounds here and there. You'll need to be prepared to take on the responsibilities and costs of being a landlord, so think carefully about your own future plans.

*Editor's note:This article was updated on 4 September 2019 to correct an error in the rates offered by Bath Building Society.