There is no lack of financial problems in a student’s life. Tuition fees are now touching the sky, and living costs are increasing as each day passes. The general expense of a student life is overwhelming in most cases. Therefore, the concept of owning a home isn’t just a distant dream but may feel like a foolish mistake. However, with student mortgages in the UK market, people are being able to secure a home while pursuing higher education.
This page will answer all your questions about student mortgages as we explore how the system works, what elements play a role as well as provide some tips and insights.
What is a Student Mortgage?
A student mortgage is a financial product whose targeted audience is students who wish to purchase property while they are still in education. The basic rules are those of any mortgage: taking a loan to buy a property and repaying it with interest over a period of time.
So aren’t mortgages for students any different? Yes, they are. They are more flexible than a traditional mortgage as the latter may not be welcoming of a student’s less stable income. However, such leniency comes with certain conditions.
Can You Get a Mortgage as a Student in the UK?
The burning question is “Can you get a mortgage as a student?”. The answer is yes but it comes with more challenges than it does for working professionals. Securing a student mortgage UK comes with certain conditions and requirements. These differ from lender to lender but if you can crack these factors, your chances are looking pretty good.
Having a guarantor significantly reduces the risk for lenders. Also, your future earning potential will be evaluated. Your university course does not directly impact your applications but if it can lead to a high-paying career like law or medicine, lenders look at that as a green flag. Part-time student workers can also use their income in the student mortgage application.
Another option to explore would be University schemes, especially made for parents who wish to buy their kids a property as they study. The student does not necessarily have to live in the property, they can rent it out to generate income.
Types of Mortgages for Students
- Buy-to-Let Mortgage
Such a student mortgage allows you to generate income through renting out to others. While this can help you make mortgage repayments, remember that they are usually more expensive than their residential counterparts.
- Guarantor Mortgage
In this case, a third party acts as a guarantor who agrees to pay your dues if you fail to do it yourself. One of the most popular mortgages for students as it reduces the financial risk and opens up more options for the student.
- Joint Mortgage
If you think your profile isn’t strong enough, you can opt for a joint mortgage with a family member who has a strong credit or financial profile. The property’s title deed will have both of your names, meaning the two of you are responsible for the mortgage.
Challenges Faced by Students Applying for Mortgages
- Income Instability: In a standard mortgage, income is given high priority. Since students cannot show a full-time income, they have to work harder to convince the lenders of their ability to make repayments regularly.
- High Deposits and Interest Rates: Students often seem risky to conventional lenders. In order to mitigate that risk, you may be asked for higher interest rates or deposits. You may need to save a good amount of money or seek help from family members. In such cases, a gifted deposit can be truly helpful.
- Affordability: There are additional relevant costs such as maintenance, insurance, etc. Unexpected expenses can also come up so having extra money is important. Even if your mortgage is approved, you should make sure you can afford all this. Having scholarships, grants, part-time work, or parental contribution helps you pass the affordability test.
- Credit History: As students do not exactly have a stable career, their credit history is limited, resulting in a poor score. Lenders prefer applicants with a proven record of responsible borrowing and financial management, which is harder for students to show.
Benefits of Getting a Student Mortgage
- Stable Living Arrangements: Student housing is basically paying a lot just to suffer from bad living conditions and unpredictability. It’s so much better in both the short and long run to stay in a stable home. You can also rent out a room or part of your home to bring in some extra income.
- Building Credit: When you are on a mortgage deal, you have to make consistent payments on time. Being able to do so helps improve your credit score. You can then use it for your future financial decisions like taking out a loan or buying a second property. A student mortgage UK gives students an early opportunity to build credit.
- Long-Term Investment: Buying a home studying can prove to be a great long-term investment. Property prices in the UK have historically risen over time. Owning a home while you are in the university gives you a head start to capitalise on market growth. By the time you have graduated, you shall have valuable equity to enjoy.
Tips and Tricks
Use Credit Wisely
You can use a secured or a low-limit credit card. Use it responsibly by keeping the balance low and making sure to pay off the full amount each month. This can work as proof to lenders that you are capable of managing your credit.
Save for a Deposit
A high deposit can increase your chances if you are perceived as a higher-risk borrower. If you can save, offer a 20-25% deposit to your lender.
Consider Specialist Lenders
Some lenders and brokers specialise in mortgages for students and are more familiar with non-conventional income structures. They are more understanding of your situation.
Use a Guarantor
When you have a guarantor, you show your lenders that there’s someone who trusts you enough to cover your mortgage payments if you can’t. Their financial backing assures the lender and gives them extra confidence.
Seek Professional Advice
Securing a mortgage while you are also juggling your studies can be overwhelming and lead to making rushed decisions. Take help from a mortgage advisor who will guide you through any complexity.
Plan for the long-term
Ask yourself some important questions to understand your plan for the future. Do you want to stay in this property after graduation? Rent it out or sell it for profit? Knowing these answers will help you go for the right student mortgage.
Common Misconceptions about Mortgages for Students
“You need a full-time job to get a student mortgage”
If you have a job, it definitely works well for showing income stability but it is not mandatory. Part-time work and parental support can also be accounted for income.
“Student mortgages have unreasonable interest rates”
Interest rates depend on the lender and the student’s circumstances. If you are providing a large deposit or have a guarantor, you may qualify for competitive rates.
“Only parents can act as guarantors”
Usually, parents agree to be guarantors, but if a close relative or guardian (who meets the lender’s criteria) wants to take up the role, they are more than welcome to provide the support.
“Student loans automatically disqualify you”
Student loans are commonly income-contingent. They also only start once you earn above a certain threshold. Therefore, they are different from the usual debts and aren’t viewed as negatively.
Conclusion
Owning a home as a student may feel impossible and this entire process can be daunting, with its own set of challenges. However, if you follow the right planning, you can achieve it too even as a student! Don’t be afraid of seeking advice for student mortgage UK from experts.
Contact UK Mortgage Finder today to get connected with a team of experts, who specialises in understanding the unique details of student mortgages. With our support and expertise, you can rest easy knowing every decision is made with the right information and confidence.
