The Broker: Mortgage advice from the experts mouth - 'Making university a real home from home'
Written on 8 September 2016 by
Well it’s almost that time of year again as sixth-form students sweat over their A-level results and hope that they can get into their chosen university, while parents are wondering where they are going to live while away and studying hard. For many, the idea of buying a place for their offspring to live in at university is quite an attractive one, however there a few things you need to consider before doing so.
Rather than being viewed as a normal buy-to-let, it would fall under a regulated mortgage contract as a ‘home for dependent relative’. This means that, as parents, you’d need to demonstrate that you have sufficient income to maintain the new mortgage as well as your current commitments. The good news is that most lenders will consider this scenario quite comfortably at around the 75 per cent loan to value area.
Where you get the 25 per cent deposit needs to be considered, too. Do you already have funds available or will you need to raise capital against your current home? If you have sufficient income and equity, then there’s no reason why you couldn’t raise the full price on your existing home and pay cash. In the current market conditions, the power of being a cash buyer could be very enticing to a vendor keen to sell.
One area you need to be aware of, though, is stamp duty – you will get clobbered for the extra three per cent stamp duty surcharge as, unless you put the property in their name, it will count as a second home for you. You could also look at a lender who offers joint borrower/sole proprietor, which is where you and your children will both be on the mortgage, but the deeds are just in the children’s name.
It’s also worth considering how long you intend to keep the property? Will you sell it once your children have finished university or do you see it as a longer-term investment? Another consideration would be where you are buying and whether the council requires the property to be licenced, even if it’s not designated as a house in multiple occupation (HMO). Talking of HMO’s, just how many students are you looking to house?
It’s worth checking the definition of an HMO to make sure that you understand exactly what they are. If you do buy a property that will be an HMO, don’t forget the additional costs of licencing. Before taking the leap you do need to take tax advice, legal advice and, of course, mortgage advice to make sure that whatever course of action you take, it’s the right one for you.
For more information on buy to let and for help finding specialist lenders in this space call: 03304 332 927
The blog postings on this site solely reflect the personal views of the authors and do not necessarily represent the views, positions, strategies or opinions of John Charcol. All comments are made in good faith, and John Charcol will not accept liability for them.