Students offered "Bank of Mum and Dad" mortgage
Bath Building Society and NorthStar Homes have partnered up to offer students a guarantor mortgage while they complete their degree.
The Buy for Uni product from Bath Building Society enables students in England and Wales to borrow up to 100% of a property’s value, to a maximum of £250,000 (£300,000 inside the M25) using equity in their parents home as additional security and with parents acting as guarantors.
A student will only qualify for the deal if their parents have sufficient equity in their own property and are able to make up any part of the mortgage payment that isn't supported from rental income from other tenants.
A spokesman for Bath Building Society said: “We expect that the student will be able to support the mortgage payments by renting rooms to other students, but we will look at the parents ability to service the mortgage if there is a shortfall. We will also take a charge over the parents property if the loan to value is greater than 80%. This charge is for a maximum of 25%"
A new subsidiary of NorthStar Homes, Uni-Commodation, works to help parents and students to find a property within their budget and renovate it.
With parents acting as guarantors to the mortgage, a student can also rent out any remaining rooms in the property to help pay the mortgage or receive an additional income.
“The property owner can benefit greatly from a rental surplus from the students sharing their house; this surplus over the mortgage payment could offset the deal or even the student’s education,” said Agi Eugenio, managing director of NorthStar Homes.
Once the homeowner graduates they have the opportunity to either continue to live in the property, possibly continuing to rent out rooms, or moving out and converting the mortgage to Buy to Let. Alternatively, they can sell the property and realise any equity without liability to capital gains tax.
The scheme has been running since 2006 and a spokesperson for Bath Building Society, added: “We have arranged around 80 Buy for Uni mortgages. We are delighted to have found such an innovative way to help first time buyers onto the property ladder.”
The mortgage is only available through the Uni-Commodation scheme, or directly through Bath Building Society.