If you can afford to, it’s generally simplest to buy the property outright.
This means that you or your child can rent to whoever you like. If you don’t have enough money to do this, you could consider releasing equity on your own home residence to free up the cash. However, this is not an option that should be entered into lightly, and comes with its own series of implications, not least that it will reduce the value of any inheritance you might have planned to leave, and that it may impact on any means-tested benefits you receive. Read more in our guide Equity release – what is it and how does it work?
If you do need to borrow money to fund your purchase, getting a mortgage on a property for your student child can be difficult. This is because most buy to let mortgages won’t permit you to let the property out to your son or daughter, or any other close relative for that matter. The reason for this is that lenders are nervous that you might not charge as much rent to a close relative as you would a tenant you don’t know, and that you may not be as strict about following up on any missing rent payments.
Most lenders will only offer you a residential mortgage on a property bought for this purpose, as it is considered a home for a dependant relative. This is not exactly advantageous: you would be paying two mortgages at once, which would significantly impact your affordability and reduce the amount you could borrow on a mortgage later on – say, if you wanted to move house. Bear in mind that if you buy the property in your own name, then you won’t be able to let out any rooms to generate rental income. If you were to buy the property in your child’s name, then they could theoretically take in lodgers and take in rent, however.
A small number of lenders offer buy to let mortgages for this scenario, under which you can rent out the property to your child and other students, and collect rental income. Bear in mind that this income will not be factored into whether you can afford the mortgage, so you’d need to be financially secure enough for this to be an option.
Some lenders also offer specialised mortgage products for students wanting to own a property and rent out rooms, with parents or grandparents acting as guarantors. These are sometimes called ‘buy for uni mortgages’ or ‘student mortgages’. Unlike standard buy to let mortgages, potential rental income is factored into affordability and it’s assumed that this will be used to pay off the mortgage.
As this can be a complex area, it may be worth seeking professional advice on the mortgage options that are available to you. There are a number of mortgage brokers available on the market, but if you’re looking for somewhere to start, we’ve partnered with an experienced mortgage advisor to offer Rest Less members high-quality advice on standard and buy to let mortgages. Book your free, no-obligation consultation here.