So, why should you ditch renting and jump into the world of mortgages while studying?
Well, let’s face it, paying rent month after month can feel like throwing money down the drain. With a student mortgage, you’re not just paying for a roof over your head – you’re actually investing in your future.
Think about it: instead of dealing with unpredictable landlords and moving from place to place every year, you could have a stable home base throughout your studies.
No more worrying about finding new accommodation or dealing with surprise rent increases. Plus, if you’re smart about it, you can actually offset your mortgage payments by renting out spare rooms to your mates.
Understanding student mortgages
There are several mortgage options available to students in the UK, each with their own advantages and disadvantages.
Choosing the right one depends on your individual circumstances and financial situation.
Let’s explore the different types of mortgages:
Buy for Uni Mortgages
A Buy for Uni mortgage is essentially a buy to let mortgage for students. They are for students who want to purchase a property while studying. These mortgages allow students to borrow up to 100% of the property’s value, eliminating the need for a deposit.
Behind the scenes they are a form of joint borrower sole proprietor mortgage, so you will need another adult (usually a parent) to be part of the mortgage.
The idea is that students can live in one room and rent out the remaining rooms to other students, using the rental income to assist with the mortgage payments.
To be eligible, you must be a full-time student with at least one year remaining in your course. The property must be located near the university, usually within 10 miles, and the number of occupants will be limited.
There’s likely to be restrictions on the type of property, such as excluding ex-local authority flats or studio flats.
The main benefit of Buy for Uni mortgages is that no deposit is required, which is a major advantage for students who haven’t had time to save. Additionally, the potential rental income can significantly offset the mortgage payments, and students can start building equity early on.
However, these mortgages often come with higher interest rates than standard mortgages, and students become landlords, responsible for managing tenants and property maintenance. It’s important to note that only a few lenders offer Buy for Uni mortgages as they are a relatively new product.
Guarantor Mortgages
Guarantor mortgages are another option for students who lack a deposit or sufficient income.
These mortgages require a guarantor, usually a parent or close relative, to guarantee the loan. The guarantor agrees to cover the mortgage payments if the student is unable to.
The guarantor’s role is to provide financial security to the lender, increasing the student’s chances of approval. However, if the student defaults on the mortgage, the guarantor is legally obligated to make the payments.
Guarantors must have a good credit history, typically own a property in the UK, and may be subject to age limits set by some lenders.
These mortgages often allow for higher loan-to-value (LTV) ratios, meaning students can borrow a larger percentage of the property’s value.
They are also offered by more lenders than Buy for Uni mortgages. However, guarantors put their own assets at risk if the student defaults, and financial arrangements can sometimes strain relationships.
Joint Borrower Sole Proprietor Mortgages
Joint Borrower Sole Proprietor (JBSP) mortgages involve two or more people, such as a student and their parent, applying for the mortgage together, but only the student owns the property (lucky student!).
This allows the student to benefit from the combined income of both borrowers, increasing their borrowing capacity.
This arrangement can help the student qualify for a larger mortgage and avoid the stamp duty surcharge that applies to second homes.
However, both borrowers are jointly responsible for the mortgage repayments, and this arrangement can be more complex than a standard mortgage, potentially requiring additional legal advice.
Standard Mortgages
While less common, students with independent income or substantial savings can explore standard mortgage options.
These mortgages require a good size deposit and proof of income, but they offer more flexibility and potentially lower interest rates than specialised student mortgages.
Students with a reliable income from part-time work or other sources may be eligible for a standard mortgage. A substantial deposit can also increase a student’s chances of approval.
As they are lower risk, these mortgages have lower interest rates and are offered by a wider range of lenders. However, they will have stricter eligibility criteria regarding income and credit history, and a 5-10% deposit will be needed.
Eligibility criteria
The deposit required for a mortgage can vary depending on the type of mortgage and the lender.
For standard mortgages, you will typically need a deposit of at least 5% of the property’s value. However, some specialised student mortgages, like Buy for Uni mortgages, may not require a deposit at all.
If you have limited savings, gifted deposits from family members are often accepted, and some lenders offer guarantor mortgages where the guarantor can provide a cash deposit or use their property as security.
Lenders assess your income to determine how much you can borrow and if you can afford the monthly repayments. For students, lenders may consider various income sources, including stipends, part-time work, parental contributions, and potential rental income (for Buy for Uni mortgages).
Student loan payments are usually factored into affordability calculations as a debt obligation.
Lenders use affordability assessments to ensure borrowers can manage their mortgage repayments. For students, these assessments consider income, expenses, and existing debts.
In the case of Buy for Uni mortgages, the potential rental income from the property is important in determining affordability.
Lenders typically use an income multiple to calculate the maximum loan amount you can borrow. This multiple is usually between 4 and 4.5 times the borrowers annual income, but again it can vary.
Some occupations can qualify for professional mortgage status, where the income multiples can be as high as six times income.
Pop in a few contact details and a qualified broker will call you back when convenient.
Mortgage options
Repayment methods
The repayment method is the way that you will pay the mortgage back.
There are actually three different options but not all of these will be permitted by your lender.
- Repayment – The traditional capital and interest mortgage where you pay back some of the mortgage each month.
- Interest only – With an interest-only option you only pay the mortgage interest each month and nothing towards the capital sum.
- Part and part – A part and part mortgage is a combination of 1 & 2 above.
Interest rates
The actual rates will always depend on the lender but the main interest rate options are:
Fixed rate: Fixed interest rate mortgages are available in a range of different terms, usually between one and ten years. Once the fixed rate starts your monthly payments won’t be affected by interest rate changes.
Tracker rate: A tracker rate mortgage is a type of variable rate mortgage, which means that the interest rate you pay can go up or down in line with the Bank of England’s (BoE) base rate. Unlike fixed-rate mortgages, a tracker rate can change so the amount you pay each month could go up if interest rates rise.
Variable rate: Variable rate mortgages are linked to the lender’s Standard Variable Rate (SVR). The interest rate you pay will be set by your lender and won’t necessarily rise or fall in line with changes to the Bank of England Base Rate. Your repayments will change when the SVR changes.
Mortgage term
The term is the number of years that your mortgage is setup for.
Traditionally, the standard mortgage term has been 25 years. With rising mortgage and housing costs borrowers are now choosing longer terms, such as 30 and even 40 years. These are sometimes called marathon mortgages.
The term will directly affect the monthly cost of a repayment mortgage, the longer the term, the lower the repayments.
Which is the best option?
Rather than which is the best option, it will be which option/s is the best fit.
A student is unlikely to be able to borrow very much at all as a sole borrower.
Where lenders offer a ‘buy for uni mortgage‘ or ‘student mortgage‘ they will be wanting at least one other responsible person attached to the mortgage.
Lenders can offer high LTV student mortgages where they have a guarantor and/or other financial security to mitigate some of the risk.
This could be by taking additional security from the parents house or by holding on to some of their savings via a family deposit mortgage.
A buy for uni mortgage relies on the ability to rent out part of the property for an additional income but these buy to let style loans are only offered by a handful of smaller building societies.
JBSP and guarantor mortgages are a bit easier to come by, and can be combined with a family deposit mortgage where a higher loan to value is needed.
How do you choose?
You don’t, yet.
You have a chat with a whole of market mortgage adviser who will then be able to understand your current position and what you are trying to achieve.
They can then research what’s possible, speak to the lenders and draw up some costs and illustrations, before explaining this to you.
Often they will need to use a combination of options together (from a flexible lender) to secure the funding you need.
You will find more useful information in our article: What does a mortgage broker do?
How much do mortgages cost?
The cost of a mortgage is affected by the loan size, the interest rate and the loan term.
You can use our mortgage calculator to accurately calculate the monthly repayments.
These pages may also be of interest:
Average Mortgage Payments: Understand what homeowners across the country are paying and how property location can affect your mortgage outlay.
Mortgage Repayments Guide: Learn more about the monthly cost of different mortgages, including repayment and interest only.
How much do you need to earn: We explain mortgage affordability and give a guide on how much you need to earn.
Improve your chances of success
Getting yourself organised and ‘mortgage ready‘ before applying for a mortgage is one of the best things you can do.
Whatever your situation, there are a number of ways that you can improve it, which will also speed up the mortgage process.
It’s really important to allow yourself enough time to gather everything together.
Credit status
Get a copy of your credit report. The report will show all sorts of credit related information and you need to make sure that it is all correct. Any errors need to be fixed.
Mortgage broker
Speak with a mortgage broker, they will be able to see how well you ‘fit’ a lenders criteria and can make practical suggestions and tips on how you can improve your situation.
Decision in principle (DIP)
Ask your mortgage adviser whether a Decision in Principle, or DIP, would be a good idea. Most first time buyers will benefit from one. A DIP or AIP will provide some extra confidence in your ability to borrow the size of mortgage you need.
Electoral roll
One factor that can greatly impact your mortgage application and creditworthiness is your presence on the Electoral Roll. The Electoral Register, is a comprehensive record of eligible voters in the United Kingdom. Am I on the Electoral Register?
Financial Associations
If you have previously applied for any type of credit with another person, the Credit Reference Agencies (CRA) will have ‘linked’ you to the other party. If an old or irrelevant financial association is still on your report, it is important to remove it.
Paperwork
Get your paperwork in order. The main documents needed from all applicants are: Driving licence, Passport, Utility bills,
Last three/six payslips, Most recent P60, SA302, Bank statements, Proof of deposit
Pay your bills
on time. (always)
Don’t apply
for any more credit before or during the mortgage application process. This could seriously damage your chances of being approved.
Credit limits
Stay well within your credit limits and if possible, reduce any debts held on credit cards or store cards.
Mortgage broker
Contact an experienced mortgage broker. Oh, we said that already. Don’t forget!!
How a broker can help
The best way to find and compare student mortgage deals is by using a qualified whole of market mortgage broker. An experienced broker will do the research on your behalf, finding your ideal mortgage from over 100 lenders.
They will understand your situation and work to find the right solution.
Searching for your own mortgage is very time-consuming and can also be quite confusing. While some people are happy to do this themselves, others recognise the advantages of using a qualified broker.
- What is a whole of market mortgage broker?
- What does a mortgage broker do?
- Do mortgage brokers charge a fee?
- Why should you use a mortgage broker?
- Why would you use a mortgage broker instead of a bank?
- How do mortgage brokers get paid?
- Mortgage broker vs Bank: Which is better for you?
- What are the advantages of using a mortgage broker?
- Ten Reasons to Use a Mortgage Broker
Yes, as a mature student, you are still eligible for a mortgage in the UK. While your student status might raise some questions for lenders, there are specific mortgage products and approaches designed to accommodate your situation.
Additionally, some lenders offer specialised mortgages for mature students, taking into consideration factors such as your future earning potential after graduation.
While bursaries and stipends are not typically considered income by most lenders, some specialised mortgage providers may consider them on a case-by-case basis.
This means that your specific circumstances, such as the type and amount of the bursary, your other income sources, and your overall financial profile, will be taken into account when determining your eligibility for a mortgage.
It’s best to consult with a mortgage broker who specialises in student mortgages to explore your options and find a lender who can accommodate your unique financial situation.
The good news is that having a student loan won’t stop you from getting a mortgage.
Student loans are viewed differently than other types of debt because repayment isn’t expected immediately – usually not until after you graduate and earn over a certain threshold.
However, lenders will still consider your student loan when assessing your overall financial situation. They’ll look at how much you need to repay each month and whether that impacts your ability to meet your mortgage payments. It’s important to be upfront about your student loan and demonstrate that you can manage both your loan repayments and potential mortgage payments.
Before you apply for a mortgage, it’s wise to review your credit report and ensure all information is accurate and up-to-date. If you have any other debts, try to pay them off or reduce them as much as possible. This will improve your creditworthiness and increase your chances of mortgage approval.
While it’s not as straightforward as getting a mortgage with full-time employment, it’s certainly possible. Lenders have specific criteria for students, and having a good credit history, a steady income (even if from part-time work or stipends), and a deposit (if required) can significantly increase your chances of approval.
It’s really up to you. You could sell the property and repay the mortgage (watch out for any early repayment fees).
If you have secured a job you could look to switch the mortgage to a different lender using a remortgage. This may enable you to get a better interest rate.
Both fixed-rate and variable-rate mortgages are available to students. Fixed-rate mortgages offer stability with consistent monthly payments, while variable-rate mortgages may have fluctuating payments based on market interest rates.
Student mortgages and standard mortgages have various fees, such as arrangement fees, valuation fees, and legal fees. These fees can vary depending on the lender and the specific mortgage product. It’s important to factor in these costs when budgeting for your mortgage.
You will find more useful information in our Guide to mortgage fees
Yes, many lenders accept gifted deposits from family members for student mortgages. However, you will need to provide evidence of the gift and its source to satisfy the lender’s requirements.
Age limits are lender specific.
All applicants need to be 18 or over and reside in the UK.
The maximum age for guarantors is typically between 75 and 80 when the mortgage term ends.
