Student buy to let mortgage (3 key tips)
Student buy to let mortgages
Many buy to ley investors may have spotted a property which is let out to students and wondered if they could get a student buy to let mortgage to enable them to take ownership of this property. Student buy to let mortgages are certainly a thing and you may be able to get one. You may want to speak to a buy to let mortgage broker who may be able to assist you in getting a student buy to let mortgage.
what are student buy to let mortgages?
Student buy to let mortgages are a type of buy to let mortgages which are targetted specifically for buy to let properties which house students.
For most student buy to let mortgages the mortgage lender may insist that there is a maximum of 4 students so the property doesn’t end up being classified as a HMO.
If the amount of students in the property are 5 or more then you may need a HMO license.
What are the eligibility requirements of a student buy to let mortgage?
To be eligible for a student buy to let mortgage you may need to have enough income to cover the monthly mortgage repayment s if the property remains unoccupied for a long period. Most student buy to let mortgage lenders will work out your mortgage affordability for the property based on the properties ability to make money.
They may expect the rental payments to be at least 120% of the monthly mortgage repayments on the student buy to let mortgage.
Some student buy to let mortgage lenders will want to know if all rooms have keys, how the communal areas are shared and even the foot traffic outside the property before they decide if you are eligible for a mortgage.
The criteria differ from one mortgage lender to another and a mortgage broker may be best suited to advise you on your eligibility based on the property and your individual circumstances.
How much can I afford on a student buy to let mortgage?
The amount you may be able to borrow on a student buy to let mortgage will depend heavily on how much the property can expect to earn per month in rent. Most student buy to let mortgage lenders will expect the property to earn rental payments which are at least 120% of the monthly mortgage payments as per the prudential regulatory authority coverage ratio guidelines.
Some mortgage lenders may require that the rent payments cover at least 150% or even up to 180% of the mortgage payments if you are a high-risk borrower.
If the mortgage you want won’t be able to cover the rental payments each month then some mortgage lenders may allow you to use your personal income to cover this. This is known as top-slicing.
How much mortgage deposit will you need for a student buy to let mortgage?
Most student buy to let mortgage lenders will expect a mortgage deposit of at least 25%. You may be able to ut down a smaller mortgage deposit if you find a mortgage lender willing to offer a loan to value rate of 85% or more.
You can expect the mortgage rates you receive to fall as you increase your mortgage deposit on your student buy to let mortgage.
Can you get a joint student buy to let mortgage?
Yes, you can. If you are looking to get a joint student buy to let mortgage but want to avoid being on the property deedes so you avoid having any additional stamp duty liability then you could simply have a ‘joint mortgage, sole title’ arrangement, where you are named on the mortgage and are liable for the mortgage repayments.
You won’t have any ownership rights but you and your joint owner(potentially your child) will be responsible for the mortgage repayments.
How Much Rent Should I Charge on a Student BTL?
The rent you should charge on a student buy to let property should usually be market rate. Most student buy to let mortgage lenders will expect your rent to be atleast 120% of your monythly mortgage repayments and some may even as for as much as 180% based on your mortgage affordabillity and perceived risk to the lender.
Can you get a student buy to let mortgage if you have bad credit?
You may be able to get a student buy to let mortgage if you have bad credit but this will really be based on what type of bad credit you have and the circumstances surrounding it.
Some student buy to let mortgage lenders may be willing to lend to borrowers who have bad bankruptcies]() in the past as long as they have been discharged for a minimum period whilst other student buy to let mortgage lenders will not lend to this type of borrower.
You may want to speak to a bad credit mortgage broker who has experience with student buy to let mortgages to see if you could get a student buy to let mortgage with bad credit.
Bad credit may include:
A debt management plan
A home reposession
To get a student buy to let mortgage with bad credit the mortgage lender may expect you to increase your mortgage deposit and reduce their loan to vaue on the student buy to let mortgage.
Can you get a student buy to let mortgage if you are self-employed?
Most mortgage lenders find it hard to lend to borrowers who are self-employed as they will usually want to see a steady and reliable income. For some self-employed borrowers, this may be hard to show and this highlights the need to use a self-employed mortgage broker who has some experience in dealing with self-employed borrowers who want student buy to let mortgages.
If you are self-employed but you are an experienced buy to let landlord with a portfolio buy to let or a few buy to let properties then you may find it much easier than a first-time buyer to let landlord who is self-employed.
If you are self-employed you may be expected to provide:
Your bank statements for the past 3 months.
Can you let your student buy to let property to a family member?
Not all student buy to let mortgage lenders are fans of people letting out the student buy to let property to their family members but you may be able to do this if your mortgage lender lets you.
They will also expect you to charge the market rate on the property if they allow you to rent it out to your family member(s).
Pros of investing in a student buy to let mortgage
- Student rentals tend to be very expensive, and for parents looking for a way to financially support their kids through university, it can seem a great way to contribute.
- As you rent out to different people you have more security as it is very likely they will all default on their rent payments and cause you to default on your mortgage repayments. You can also ask each tenant to have a guarantor who will be personally liable if the tenant defaults.
- If you are a parent you may view a student buy t let rental as a way to support your kids through school whilst making an investment.
- A student house or flat could be more competitive than purpose-built student accommodation which has been on the rise of recent. Students may find these accommodations too expensive and out of reach.
- Property maintenance may be less as students may have fewer demands than a family for example.
Cons of a student buy to let
- There may be many certifications which you need to ensure you have. These include a Housing Health & Safety Rating, Energy Performance Certificate, annual gas check certificate which could mean that repairs or improvements are needed.
- Property prices can move in any direction and hence make student let properties a very risky investment
- Students can be viewed as bad tenants who cause damages, make a lot of noise and leave the house in a worse state than they found it which means you have to make major repairs.
- Student let properties may find that during the holidays the homes may be left unoccupied which may lead to an increase in theft. This could also be because the houses are not being rented out during that time and hence no rental income to cover your monthly mortgage repayments on your student buy to let mortgage.
- Student buy to let mortgage may have high set up and arrangement fees which could be as high as 3% of the mortgage amount.
Government schemes you can’t use
Government schemes help you reduce the amount of mortgage deposit you may need to put down, reduce the price of the property or create a structure that increases your mortgage affordability much sooner than it would have been.
Some of these include first-time buyer government schemes whilst others in this list are accessible to you even if you are not a first-time buyer.
Government schemes are not available to you if you are getting a buy to let mortgage.
The Government schemes include:
- Lifetime ISA– gives you a government bonus of £1,000 if you save a maximum £4,000 a year.
- Help to buy ISA– gives a maximum bonus us £3,000 if you save the maximum allowed of £12,000. Before you get either you should consider which is better. Lifetime ISA vs Help to buy ISA.
- Help to buy equity loan– gives you up to 40% as a 5-year interest-free equity loan. You begin to pay interest at 1.75 % after the fifth year and 1% plus RPI for every year thereafter.
- Shared ownership– You can buy between 25% to 75% of the property initially with a shared ownership mortgage and then buy more using a staircasing mortgage.
- Armed forces help to buy– similar to the help to buy equity loan but specific for the armed forces personnel giving them an increased chance of acceptance.
- Rent to buy– This is the right to buy scheme on which this guide is currently discussing. A different marketing name is just used. Watch out for this when shopping to avoid missing out on eligible properties due to confusion.
- Right to buy– allows you to buy your home at a discount price.
- Preserved right to buy– same as above.
- Right to acquire– similar to the above.
Depending on where you live, you may also be able to take advantage of home buying schemes provided by your local council. Example: In Norwich, the local councils provide the Norwich home options scheme.
Use a mortgage broker for your mortgage in principle
You may want to use an independent mortgage broker to help you get a mortgage on your new home.
Mortgage brokers are important as they can access mortgage products from across the whole of the market in some cases.
This could be over 11,000 mortgage products. This may have some advantages rather than going directly to a mortgage lender.
A mortgage broker will look to understand your financial circumstances and then provide recommendations on which mortgage products may be suitable for you based on your mortgage affordability.
After giving you these mortgage recommendations, most mortgage brokers will seek your consent to apply for a mortgage in principle.
This will allow you to shop for your home as more estate agents and sellers may take you seriously and it will also give you confidence that your mortgage is indeed a possibility before you make a full mortgage application.
Once you have found a home you want to buy and are satisfied with the mortgage offer for your mortgage then the mortgage broker will then look to get you a mortgage offer.
This will come with a key facts illustration document that details the features of your mortgage including how much you will pay per month.
It will also contain information on if there are any limits such as early repayment fees, or annual overpayment limits.
If you are happy with everything you can then go on to secure your mortgage with the help of a conveyancer.
Your conveyancer will manage the legal searches on the property to ensure there aren’t any issues with it.
They will oversee the sales agreement to ensure it is in your best interest, they will manage the transfer of mortgage funds, exchange contracts with the seller or their conveyancer, and set a completion date with the seller or their conveyancer.
This will then bring an end to the conveyancing process, at which point you will receive the keys to the house and move in.
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.
You can also contact the debt charity “Step Change” if you are in debt and need help.