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Vernon Building Society 100% Buy for Uni Mortgage. Good move or bad move?

Posted on 20 November, 2019

Vernon Building Society is the latest lender to offer 100% mortgages for students to become landlords. The building society will lend students 100% of the value of the property up to a maximum of £300,000 on a buy-to-let mortgage.

We’ve listed some information on the deal and key points to consider below.

How does it work?

With a Buy for Uni mortgage the student borrower buys suitable accommodation in their own name with a mortgage of up to 100% of the property’s value (or purchase price if lower). They rent spare rooms (up to 3 lodgers allowed) to friends and use the rental income to help meet the mortgage payments.

The mortgage is supported by the parents who will be joint borrower(s) and (where a deposit of at least 20% of the property value is not available) will provide additional security in the form of cash or a legal charge on property. You should note that parents are not a joint owner of the property which is in the student’s sole name.

Who is eligible?

To qualify you must be 18 or over, UK resident and in higher education with at least one year remaining on your course.

Who owns the property?

The property is owned solely by the student. The parents will be on the mortgage but not the deed. Therefore, no stamp duty will need to be paid.

How much can I borrow?

The maximum loan amount is £300,000 and the minimum loan is £125,000

Restrictions on the property that can be purchased

The property must be in England or Wales. The minimum property value is £125,000 and our maximum loan is £300,000.

The property must be in good proximity to the university with a maximum of 4 bedrooms. We will not lend on flats.

The maximum number of tenants is 3. We will not lend if the use of the property requires a mandatory House in Multiple Occupation (HMO) licence (see our Q&A leaflet download for further details).

What is the maximum/minimum mortgage term?

Our maximum mortgage term is 25 years, or the date when any parent joint borrower reaches their selected retirement date or age of 75, whichever is earlier. The minimum mortgage term is 5 years.

What extent of parental support is required?

The mortgage must be in the joint names of the student and the parent(s) which means they are individually and jointly responsible for making the monthly mortgage payments and repaying the mortgage in full.

In terms of additional security there are several options to suit different circumstances.

  • If at least a 20% deposit is provided, then no additional security is required.
  • If less than 20% or no deposit is available, then the mortgage can be supported by either cash deposited in a Vernon savings account in the name of the parent(s) or a legal charge over the parent’s own house.
  • If cash is provided then this needs to be equivalent to the amount of the loan that exceeds 80% of the value/price of the property being purchased.
  • If a charge over property is provided then this must be equivalent to the amount of the loan that exceeds 75% of the value/price of the property being purchased.

What are the rates?

When can the mortgage transfer into the sole name of the

We could transfer the mortgage into the homeowner’s sole name at a point where the mortgage is less than 80% of the property value and the borrower can demonstrate that they can afford the mortgage on their own in line with our affordability assessments at that time. An up to date valuation would be required at this time with the cost borne by the borrower.

Things to consider

1. You will need to consider what you will do once the university course is over. Your options will be:

  • Continue living in the property and start a career, converting to a standard residential mortgage.
  • Continue to live in the property and rent rooms out
  • Keep the property as a buy to let investment – you’d need to convert to a buy to let mortgage should you wish to do this and your affordability will need to be reassessed
  • Sell the property and clear the outstanding mortgage debt

2. Students will use their first time buyer rights and will have to pay 2nd home stamp duty on their next property.

3. It’s a 100% mortgage so there is a big risk of falling into negative equity if the price of the property decreases.

4. The charge is against the parents property so in the case of any defaults, the parents will be responsible for topping up any shortfall.

5. If the university is located outside of your home city, it is important to consider what you will do when university has finished. Will you rent it out and move back home? As mentioned above, your first time buyer rights will have gone so it may be difficult to get a mortgage elsewhere.

6. Other 100% mortgages that may be worth considering are:

  • Barclay’s Springboard
  • Family Building Society’s Family Mortgage
  • The Post Office’s Family Link.
  • Lloyds Bank’s Lend a Hand mortgage 

7. Potential tax implications – The income from rent may exceed the amount you can earn before you need to start paying tax.

8. The 4.70% initial rate and the 5.20% SVR rate is quite high, however, this is expected due to the 100% nature of the mortgage,

Overall, we would say the Vernon buy for uni mortgage is an opportunity to get on the property ladder significantly earlier than most. It’s important that you consider the pros and cons and have a plan for what you will do once the university course finishes. In the worst case scenario, parents can end up in negative equity, with a mortgage debt higher than the value of your home, this can be risky especially due to the uncertainty surrounding Brexit.

*This article is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published.

Need a mortgage advisor? Complete this form to get a free initial consultation with our impartial mortgage brokers Arne Grey

Need a conveyancer? – Complete this form to get a quote from our carefully selected Conveyancing partner Mullis & Peake.

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