If you’re a student hoping to get your foot on the property ladder, a mortgage is typically your best choice. In this article, we’ll go through the conditions you need to satisfy to get one, different types of student mortgages, and some common questions.
How to Get a Mortgage as a Student
Step 1: Get Your Credit Report Ready
Step 2: Speak to a Broker
Step 3: Gather Your Documents
Can You Get a Mortgage as a Student?
Yes, you can get a mortgage as a student. However, buying a property is usually more difficult for students due to three reasons:
Being young, students tend to have a limited credit rating
They are less likely to have full-time income
They often have limited or no savings
This is why buying a property usually requires support (deposit or collateral) from a family member. However, if the support is there, you might be eligible for a mortgage.
Yes, but not as much as other types of debt. While student debt does affect loan affordability, it’s considered less risky as higher education usually improves your long-term repayment ability. In fact, it doesn’t even show up on your credit file like a personal loan would (meaning you have to declare it separately).
What Type of Student Can Get a Mortgage?
Any student can get a mortgage as long as the lender assesses whether a student can afford it or satisfy certain conditions. For example, if you want a buy-for-uni mortgage, there might be terms such as age requirements or having at least a year (or more) by the end of your course.
Does a Student’s Major Affect Their Mortgage Eligibility?
Your major won’t affect your mortgage eligibility as much as your potential guarantor’s financial situation and credit score. However, students training to be teachers, NHS staff, or other key workers may find it easier to get a mortgage or receive other types of benefits such as discounts.
Can PhD Students Get a Mortgage?
Yes, PhD students can get student mortgages just like undergrads. However, your PhD stipend is usually not considered regular income, as you only receive it until you finish your degree. In this case, having a part-time job can help your application.
Do Mature Students Have a Higher Chance of Getting a Mortgage?
The mortgage applications for mature students are assessed on similar grounds to mortgages for other students, on the basis of their credit, income, and savings. However, a few extra years in the workforce can have a positive effect on all of these factors and may even give you the opportunity to apply as a sole borrower.
While you can buy a house in the UK as an international student, getting a mortgage is usually more difficult. If you don’t have a history of employment income, you will need a UK-based guarantor who owns the property and is your legal guardian.
Types of Student Income Lenders Will Accept
While all mortgage lenders accept employment income, whether they will accept your student income or not will depend on the lender:
Stipends and bursaries are not acceptable as income for most lenders. However, some niche lenders do accept stipends and bursaries, assuming your future income will be much higher.
A student loan is not acceptable as income as it is a kind of debt. In some rare cases, they can be accepted as a deposit.
In Buy-for-Uni schemes, the rent from the property you want to buy will count towards your total income.
No, stamp duty is only paid when you purchase your second property, which is usually not the case with students. Parents who are only providing security and won’t be on the deed are also not obligated to pay, as it technically isn’t their second property. However, if a parent purchases a buy-to-let property for their child, they will have to pay as it would be their second home.
What Is a Student Mortgage?
A student mortgage refers to mortgages that are designed so that students can purchase a property. The products are not always called student mortgages but fall under other types of mortgages designed to help first-time buyers. Unfortunately, like all mortgages, you risk having your property repossessed if you can’t keep up with the mortgage payments.
What Student Mortgages Are Available?
There are four types of student mortgages available:
1. Guarantor
Guarantor mortgages involve a person (the guarantor) who is willing to pay for your mortgage loan if you can’t keep up with the monthly mortgage repayments. Usually, this is a parent, a legal guardian or another family member. However, if the guarantor's property or savings account is used as security, they risk losing it if none of you keeps up with the loan repayments.
2. Family Springboard
A family springboard or family boost mortgage uses your family’s savings as a guarantee that you will pay your mortgage regularly. The family gives the lender a certain percentage of the property value in savings (for example, 10% of the property price).
The lender then places this money in a fixed saver as collateral where it earns interest for a set period (let’s say, five years). If no mortgage repayments are missed within that time, the lender returns the collateral with interest to the family member.
3. Joint Borrower, Sole Proprietor Mortgage
A joint borrower, sole proprietor student mortgage refers to a mortgage taken jointly when a student adds another family member or friend to make monthly repayments. However, only one, in this case, the student will have legal rights to the property.
So, unlike guarantor mortgages where the family member covers the payment in case you aren’t able to, a JBSP mortgage requires them to pay for a part of the mortgage at all times.
4. Buy-For-University Scheme
Buy-for-university schemes are a type of buy-to-let mortgage that allows students to buy the property and rent out spare rooms to help pay for the mortgage. Typically, you will need some sort of security or backup from your family. You also need to fulfil requirements that vary by lender, for example:
Have a certain number of housemates
Buy a property of a certain size (no studios)
Study for another year or more
Live within a set radius from the university or
Have a direct line of transport to uni
University Mortgage Terms
University mortgage terms are 5 to 40 years depending on the mortgage type and size. Buy-for-university mortgages usually have shorter terms of up to 7 years.
When it comes to deposits, the typical minimum amount is 5%, even though some lenders let you borrow money without a deposit. However, the loan-to-value ratio (the bigger the deposit, the lower the ratio) determines the kind of interest rates you get.
What Interest Rates to Expect?
Student mortgage interest rates depend on
The size of the deposit and
The student’s and the guarantor’s/joint borrower’s income.
However, due to the increased risk lenders are facing with students, interest rates are typically higher compared to regular mortgages (in July 2023, it was around 7%).
The usual securities for a student mortgage involve cash (for example, savings in family springboard mortgages), equity in an existing property (usually homes), or a combination of the two.
The Bank Rate
Bear in mind that your interest rate will also depend on the Bank Rate set by the Bank of England, also known as the Base Rate. In the previous years, the Bank Rate has been growing steadily and causing concern for homeowners with a mortgage.
How Can a Student Get a Mortgage in The UK?
What you need for a mortgage is a solid income (which students usually don’t have), a good credit score (again, students don't have this), and solid savings for a deposit.
So, how do you convince a lender to approve a mortgage? These are the two main tips.
1. Get a Guarantor
A guarantor for a mortgage helps convince the lender to give you a mortgage because they guarantee with their savings or property that you will pay your mortgage. Otherwise, the guarantor will have to pay the mortgage or risk losing their savings or property.
Joint borrowers are similar, but they will have to pay the mortgage with you every month in any case.
A guarantor needs to:
Be a UK resident
Own a property in the UK
Be younger than a certain age (usually 65)
Have a clean, solid credit history
In most cases, your parents, legal guardians, grandparents, or other family members are eligible to be your guarantor. The exact terms depend on the provider.
2. Put Down a Large Deposit
Another way to persuade a lender that you’re able to pay for the mortgage is to put down a large deposit for the property.
In other words, putting down a deposit means you’re paying for a part of the property upfront and taking part in the overall risk. This relationship between the deposit and the rest of the price (the amount you’ll need to borrow) is called LTV or loan-to-value ratio.
For example, if the house you set your eyes on, costs £300,000 and you put down a £30,000 deposit, you’ll need to borrow £270,000. In this case, the LTV is 90% as you’re paying for 10% of the property upfront and borrowing 90%.
However, there are student mortgages that require no deposit with an LTV of 100%. In this case, you don’t need a deposit, but you will need a guarantor.
The rule of thumb is that the bigger the deposit, the better the deal you’ll get. So in the case of 100% LTV, you can expect the interest rates to be quite high and the mortgage to be more expensive in the long run.
Should I Get a Student Mortgage?
With growing rent, many students have been thinking about getting a student mortgage. But is it a good idea? Here are the main pros and cons of a student mortgage.
- A mortgage might be more affordable in the long run. With the price of rent nowadays, mortgaging can be cheaper than renting, even though it’s riskier.
- You’re investing in your own place. Instead of throwing your money on rent, you are investing in something of your own.
- Your property could rise in value. This means you could make a profit once you sell the property.
- You can profit off of rent. Homes near universities have good chances of finding tenants, so if you’re lucky, you can have additional income early in your career.
- Student mortgage Interest rates are generally higher - As lenders consider lending to students to be high risk, interest rates tend to be higher, too. This is especially true for 100% LTV mortgages.
- Risks include losing your securities - If you don’t manage to cover your mortgage, you could lose your home or the savings you or your family deposited as security. Moreover, your guarantor could also lose their home.
- Your property could drop in value - If this happens, you’ll have difficulties remortgaging or covering your debt even if you decide to sell.
- Buying for uni involves the stress of being a landlord - Managing repairs, having empty rooms, or handling late payments could affect your ability to keep up with repayments. You will need to have a plan B for these situations as they are all a part of being a landlord.
Which Are the Best Student Mortgage Providers?
As it is a high-risk loan, there aren’t many providers that offer student mortgages. With rising base rates and changing property prices, it’s best to find a specialist mortgage broker and have them find you a mortgage tailored to your circumstances.
Have a look at some of the banks and building societies with deals worth considering:
Type of Mortgage | LTV | |
|---|---|---|
Halifax | Family Springboard | 100% |
Vernon Building Society | Buy-for-university | 100% |
Scottish Building Society | Guarantor | 90% |
