Can a student get a mortgage?
09 March 2023
Technically, there is no such thing as a student mortgage, it will be the same application process as a regular residential mortgage. Students might typically face a few challenges when applying for a mortgage due to the affordability criteria, however there are a range of different options available to help students to get a mortgage.
Minimum age to apply for a mortgage
The minimum age to apply for a residential mortgage is 18 years of age.
When applying for a mortgage as a student, you will still be required to undergo an affordability check. The lender will perform this test to understand what you would be able to consistently afford. Every lender will have their own criteria and process; however a general mortgage affordability rule of thumb is affordability is typically up to 4.5 - 5 times your income. As a student, your income might be lower or less stable compared to someone in full time employment. If this is the case, it is highly likely that you will need the financial support and guarantee of a close family member through a guarantor mortgage.
What will the lender analyse when a student applies for a mortgage?
Every lender has their own criteria and processes; however, you should expect to provide details about following if you are a student applying for a mortgage:
- Credit history
- Outstanding loans and debts
- Guarantor details (if applicable)
Guarantor mortgages are popular with students applying for a mortgage. A guarantor mortgage is a loan taken out in your name, but with the financial backing of a close family member. You will still be responsible to pay for the mortgage and you will own the property, however the guarantor will act as security for the loan if you are unable to pay the mortgage. The guarantor will undergo thorough financial checks to ensure that they could afford to take on the mortgage should you be unable to, and they must already own a UK property. There are different types of guarantor mortgages available in the UK, these being:
Whole loan guarantor
The most common form of guarantor loan in the UK, a whole loan guarantor mortgage will require the guarantor to accept financial responsibility and cover for the value of the entire mortgage. The lender will calculate mortgage affordability for the guarantor and will take into account other outgoings and financial commitments such as the mortgage on their current property, so it might not be suitable for everyone.
This type of mortgage is rare, but they are offered by certain lenders. A shortfall guarantor mortgage will only require the guarantor to cover the surplus in affordability that the borrower can’t afford themselves.
Guarantor security requirements
Not everybody is eligible to act as a property guarantor. Whilst every lender will have their own requirements, the typical requirements will be:
- They must own a property of their own. This property will have a charge held on it as the security, meaning the property could be repossessed if the borrower defaults or misses too many payments.
- Certain types of guarantor mortgages might require the guarantor to place a lump sum into a savings account held by the lender to act as the security. This money will be locked away for a set period or until a certain amount of the mortgage has been repaid.
Family deposit mortgage
An alternative to a guarantor mortgage for students with financial support from family members is the family deposit mortgage, known as a family springboard mortgage by Barclays. If your close relative, such as a parent or guardian, is willing to put 10% of the property’s worth into a savings account with the lender to act as collateral, while the buyer will put in 5% of the property’s worth. With this type of mortgage, it is the family member who is covering the risk of the mortgage for the set period that the savings account is required, typically 3, 5 or 10 years. If the mortgage repayments have been fully paid and subject to other conditions, these savings are released back to the family member plus interest. Not all lenders offer family deposit mortgages but there is a wide selection of them who do.
Joint borrower, sole proprietor mortgage
The joint borrower, sole proprietor mortgages are designed for first time buyers. This type of mortgage enables multiple people to make mortgage payments with only one person owning the property. This type of mortgage will help to maximise your buying power and are sometimes referred to by lenders as either ‘joint mortgage single ownership’ or even ‘booster mortgages’. Whilst they are typically used by younger people with the financial support of their parents, they can also be used to help elderly parents secure a mortgage with the financial support of their working children.
Pros of Joint borrower, sole proprietor mortgages
Can help you to access a wider range of mortgage deals as you will have a higher income and deposit.
No limits on the type of property you can buy, unlike government-backed schemes such as Shared Ownership.
- If the property is below the current stamp duty threshold, your joint borrowers are not liable to pay any stamp duty or capital gains tax.
- You will still own your home entirely and can take full responsibility for the mortgage once your income is at a sufficient level.
- If you have a poor credit history, this type of mortgage might open up new mortgage opportunities for you.
Cons of Joint borrower, sole proprietor mortgages
- Whilst the joint borrowers do not have any rights to the property, they will be impacted by any defaults, missed payments or penalties.
- Not everyone on the mortgage has ownership, this unequal equity split does not appeal to everyone.
If you are a student in the position to take your first or next step on the property ladder, we are here to help with specialist, tailored advice. Whether you are funding the mortgage yourself or with the support of your family members, there are a range of different options available to help you secure your next property. To book a free, no obligation appointment with one of our friendly team, please use the link below.