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Buy to let for your student children

Buy-to-let for your student children

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Having a child at university is a costly business. But buying a property for a son or daughter to live in while away from home studying will avoid wasted rent and could turn into a tidy investment.

Property prices in university towns, such as Leeds, Manchester and Sheffield, have soared in recent years. Cherie Blair may have got stung and paid over the odds for her son Ewan's student flat in Bristol. But a bit of careful research and financial planning should prevent disaster.

Earlier this year Bath Building Society launched a 'buy for uni' mortgage scheme. The scheme enables parents to buy a student property either in their own name or that of the child, which may be beneficial for tax purposes.

The mortgage is aimed at students in the Bath and Bristol area although the building society will consider other locations and it is available for up to 100% of a property's value.

Few people will have the ready cash to shell out for a second property which means it will be necessary to take out a buy to let mortgage.

The good news is the interest rates on buy to let loans have come down in recent years. But be sure to inform potential lenders that a family member will live in the property as this affects the mortgage deals that are available to you.

'Buy to let mortgages are not regulated by the Financial Services Authority, unless 40% or more of the property is used as a home by the borrower or a member of their immediate family,' says James Cotton at London & Country Mortgages in Bath. Not all buy to let lenders operate in the regulated mortgage market so they may not be able to give you a mortgage on this basis.'

Two suitable deals that are on offer in this scenario are from Clydesdale Bank and Scarborough Building Society. Clydesdale's, available through mortgage brokers only, has a starting rate of 5.29%. The rate, which is the same for the life of the loan, tracks at 0.79% above the Bank of England base rate. Scarborough has a two year tracker deal with a starting rate of 4.99%.

Most buy to let loans require the borrower to have at least 15% to 20% in the form of a deposit and they will typically require that the rental income is about 120% of your monthly mortgage payment.

Lee Grandin, manager at Landlord Mortgages, a broker for buy to let loans, says it is important that parents treat the property purchase like a business and not an extension of their own family home. It is advisable to get all tenants to sign an assured shorthold tenancy agreement and set down ground rules at the outset.

'Engage your child in the project and give them a financial incentive to make it work, such as a proportion of any gains in value,' says Grandin. 'It is essential that your son or daughter keeps the property in good condition and finds suitable tenants or the whole thing will fail.'

Grandin adds that parents should not go into the arrangement lightly: 'It can be hard work being a landlord, particularly if a family member is the tenant. If it is going to cause disputes or if you think there could be problems that would disrupt your child's studies then steer clear. Remember if the rent is not paid then you'll still be liable for the mortgage.'

Sort out the numbers There are a lot of providers offering different buy-to-Let Mortgages. Compare some of the best buy-to-let mortgage offers.

You'll also need landlord insurance - you cannot just use normal home insurance for a property that you're renting out. Find out more information on insuring your buy-to-let.

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