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.
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.
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.
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 . 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.
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.
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 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.
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||Buy-for-uni mortgage|
|Stamp duty||If 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.|
|Landlordresponsibilities||You'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 costs||Your deposit, stamp duty and additional fees for services such as and .||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 implications||are low if you have a deposit of 25%, though many of the cheapest deals come with high up-front fees.||High-interest rates.|
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.
If you are considering either investing in property yourself or helping your child obtain a buy-for-uni mortgage, consider the following:
*Editor's note:This article was updated on 4 September 2019 to correct an error in the rates offered by Bath Building Society.