Getting a student mortgage
Students looking to take out a mortgage are usually in a position where they have money they want to invest. This money is often gifted from parents or other relatives as a way to give them their inheritance early. This means they will avoid paying inheritance tax and their children will receive the money when they need it most.
Taking out a mortgage while at university or college allows young people to get on the property ladder much sooner. Once they graduate they will have a house they can live in rent free or use the value of the property to help them kick start their new career.
On the other hand, you might be a mature student or doing a post-graduate degree and have savings to put down as a deposit.
Student mortgages are usually only available with a guarantor. This is usually a student’s parent or legal guardian who will be responsible for paying the mortgage in the event that payments aren’t made on time.
As students are likely to have little to no credit history, lenders will often use the history of the guarantor to base the mortgage on.
If you’re an investor looking for a property to rent out to students then we have more information on buy-to-let mortgages.
Mortgage approval for students
Although it can sometimes be difficult for students to get mortgage approval, it’s still possible with the right lender. Choosing a broker who looks at each applicant’s circumstances individually will give you the best chance of getting approved.
Other things that will help your application include:
Your deposit amount
The more you have to put towards a deposit on your mortgage, the better your chances are at approval. This is because the more money you put in yourself, the less you will need to borrow. If you don’t have enough to put down (at least 10%) then you might want to reconsider your decision. Otherwise, you could delay your application until you have saved enough for your deposit.
Your credit score
As a first time buyer, you won’t have a history of mortgage repayments for lenders to base a decision on. Instead, they will consider your application based on other information such as phone contracts, personal loans and credit cards. If you’re looking to take out a mortgage and don’t have a credit history then it might be a good idea to look into building up your credit score first. This article outlines how you can establish a credit score.
On the other hand, if you know you have a bad credit history, then as a specialist mortgage broker we can look into your individual situation and help source a suitable lender.
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Why Clever Mortgages?
At Clever Mortgages we can offer you the support and advice required to ensure you get the right mortgage for your first home. We provide access to a comprehensive range of mortgages from across the market. We are also authorised and regulated by the Financial Conduct Authority (FCA) and adhere to the Treating Customers Fairly (TCF) guidelines, so you can be confident that we will treat you with integrity and only recommend products that meet your needs.
A fixed rate mortgage is where your interest rate stays the same for a set time period (usually between 2-10 years). As a result your repayments are exactly the same each month, regardless of what happens to other mortgage rates. These types of mortgages are popular with first time buyers and people looking to budget each month, especially those who have suffered from a poor credit history.
The main downside to a fixed rate mortgage is that if mortgage rates go down you can be paying a higher amount than you would on a variable rate mortgage. However, this can also go in your favour and if interest rates increase you can be paying less than you would on a variable rate.
Every lender will have their own standard variable rate (SVR), which is considered their basic mortgage. This interest rate goes up and down, usually in line with the Bank of England’s interest rates but the lender is free to raise this at any time.
This means that your monthly payments can go up or down depending on what the interest rate is at a given time. Some months you could be paying more whilst other months you could be paying much less.
A discount mortgage is when a reduction is applied to the lenders Standard Variable Rate (SVR) for a certain length of time (typically 2-3 years). Discount mortgages are attractive as they can allow you to pay slightly less than the bank's standard rate. However as the SVR can still fluctuate they are not ideal for people who are looking to stick to a strict long term budget.
A tracker mortgage is basically a type of variable rate mortgage. What makes them different from other variable rate mortgages is that they follow – track – movements of another rate, the most common rate that is tracked is the Bank of England Base Rate.
A capped mortgage is the same as a variable rate mortgage; however the interest rate can never rise above a set “cap”. These mortgages can work well for people who can budget for different mortgage repayments each month but want the reassurance that their payments will never go above a certain amount.
Offset mortgages are linked to a savings account as well as your current account. Your savings will be 'offset' against the value of your mortgage, and you'll only pay interest on your mortgage balance minus your savings balance. These types of mortgages work well for higher earners or people who have a good amount in savings that they want to use towards paying their mortgage.