Should I buy my student son a house?
My son is at university in London, with three years left to run on his course. He pays £128 a week to live in halls of residence.
My question is should we just accept rent money is 'dead' money or should we try to buy a property for him to live in?
We could take out an interest-only mortgage to buy a three or four-bedroom property, so he could pay towards the mortgage and rent out the other three rooms to students at the same rate.
We could raise a £25,000 deposit for the property. We own our two-bedroom home with six years left to run on the mortgage. We also have another property valued at approximately £80,000, which we rent out for £475 per month.
Should we buy a house using our deposit or take out a 100% mortgage in our son's name? Our second son is studying AS Levels, and is unsure whether or not to apply to university because of the huge costs involved.
If we had a property then he could move in there and cut his costs, presuming he wanted to study in London. If there is any profit to be made, this could go to both boys to reduce their debts at the end of university.
Many parents have looked at accommodation costs at university as both expensive and dead money. One of the key considerations is to decide what the aim of the purchase would be.
Would it be as a longer-term investment for yourselves or a property that could become your son's home?
If you want to buy the property as an investment, it could be purchased in your name with a buy-to-let mortgage. Lenders generally want the rental income that the property will generate to cover the mortgage interest by a certain buffer, usually 125%.
However, buy-to-let mortgages do require big deposits, typically at least 25%, and your options may be limited by the fact that your son will live there. This classes it as a regulated mortgage and some lenders will not offer buy-to-let deals on that basis.
The problem in buying the property in your son's name is likely to be the lack of any income due to his student status. The mainstream market does not offer 100% mortgages, so you would need to help with the deposit, as well as probably acting as guarantors on the mortgage (which means you promise to cover the mortgage repayments if your son fails to do so).
There is another option to consider, designed for exactly this purpose. Bath Building Society offers a Buy for University mortgage that allows the child to get a mortgage in their name based on the rental income from the let rooms, and possibly parental income too.
You can borrow up to 100% of the purchase price but there will be a requirement for a collateral charge on the parental property on any amount above 80%.
is a mortgage expert at London & Country Mortgages in Bath.