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When kids head off to university, you can expect two questions to occur to regularity: ‘how do I cook/wash [insert item]’ and ‘can you lend me some money?’. While we can’t help with the first one, this new Uni Mortgage could help with the second.
The new Uni Mortgage was launched by Vernon Building Society this week. It helps University students get on the property ladder with a 100 per cent mortage. However, parents will have to put down a cash deposit or put a stake of equity in their own home on the line.
Vernon building society Uni Mortgage
The mortgage is one of the best value of its kind, offering a five-year discounted rate at 4.7 per cent over a 25-year term. After five years the rate rises to 5.2 per cent.
There is also an additional set up cost of £499, if you borrow 80 per cent of the property’s value. And £899 if you borrow between 81 per cent and 100 per cent.
To qualify for the mortgage, students must be in higher education and 18 or over, plus have at least one year left of their course. The mortgage can’t be used on a flat, but must be used on a property with a maximum of four bedrooms and three tenants.
The property also has to be priced between £125,000 and £300,000 and within roughly a 10-mile radius of the university.
Because the student’s name is on the title deed, and assuming that they’re a first-time buyer, stamp duty will only need to be paid if the property cost more than £300,000. Another plus side of this mortgage is that the student is effectively a buy to let landlord – and can collect rent from his flatmates to cover the mortgage repayments.
So far, the Vernon building society sounds like a great way to help your kids get on the property ladder early. And fingers crossed your kids will find themselves slightly more financially sufficient.
However, on the other hand, if you’re not sure your son or daughter can keep up with the monthly mortgage repayments and you can’t help them out, this might not be the best option.
Parents have to cough up a deposit for the amount of the loan that’s above 80 per cent of the loan to value. This is held by the building society in a Financial Service Compensation Scheme that pays 1 per cent interest and is returned at the end of the mortgage deal.
Parents can also put a stake of equity in their home on the line, equivalent to the amount of the loan that exceeds 75 per cent loan to value. However, what this means is that it’s the parent’s cash on the line if the home falls into negative equity or repossessed.
‘Before diving in, students and parents alike will need to research the areas properly to get the right property in the right location. They will also need to consider the practicalities,’ advises Paula Higgins, chief executive of the property advice website HomeOwners Alliance.
‘You are likely to have an annual turnover, meaning you could spend quite a bit of time looking for new tenants. Students will need to be prepared to balance being a landlord with their studies. And parents need to avoid eroding their finances in a way that impacts on their financial stability in later life. It’s at this point in your life that we recommend getting independent financial advice,’ she adds.
Would you help your kid get on the property ladder while they’re still at university?