Buying rather than renting at uni?

[ziipidydodah]

Any tips from anyone who has helped their DC to do this?

(I realise it’s a privilege.)

DC is going to be in halls for first year anyway, but thinking for 2nd to 4th year (Scottish uni) it might make more sense to buy. Rent on student accommodation is about £6k, but there are plenty of nice 3 bed flats available in the area for £150k.

DS already has £20k towards a house deposit. We’d be paying the rent anyway, so think would be better to put it towards a mortgage. Combine that with taking a couple of lodgers and the mortgage and utilities would be covered.

Complication is that we would want the flat to be in DS’s name, but obviously we would be liable for the mortgage.

Obviously we’d be taking financial advice, but just looking for any experience of this really, good or bad?

I think you'll find stamp duty makes it problematic.

In the US, where I'm from, some parents will do this, especially because it's 4 years for undergrad. It can work out really well!

In the UK stamp duty can mean:
If it's in your name: £4500 stamp duty on a second home

The loss of the stamp duty free first purchase on his long term home. This is up to 500k property so if he wants to move to London, Bristol, or SE after uni and eventually buy there, he won't he happy to pay stamp duty on the full whack.

Only buy it if you want to keep it as an investment property.

The transaction costs of buying are high. As a pp says, you will also lose the first time buyer no stamp duty.

Your child may not want to deal with getting in others to pay rent and when the inevitable fallings-out happen it'll be even more stressful.

I bought a house that had been purchased by a parent for their student daughter. She lived in it with student friends. I do know they only owned it for 5 years before selling, when they all finished their courses and moved out. Unfortunately they lost £20k when selling so I don’t know that it always works out. If they’d stayed longer they’d have been fine but they weren’t local and I don’t think they could be bothered with the hassle of keeping it.

I can't comment on deposits/loans/which name etc etc.

DH and his parents did the same- but 20yrs ago. He now has it as an investment property and we rent it to students. Majority only stay 1 yr and its managed via the student union type group. Unlike going with a regular, high st real estate agent, if they leave the place a mess- they don't get their degree! Might be something to consider in the future.

Thanks all. Some really good points to consider there. It’s obviously not straightforward.

My brother did this. There are a couple of building societies that specialise in student mortgages.

https://www.bathbuildingsociety.co.uk/mortgages/browse-mortgages-by-product-type/buy-for-uni/

(Not sure who my brother used so I’m not recommending this lender as such, it’s just the first bank that came up on googling).

https://www.onlinemortgageadvisor.co.uk/income-types/student-mortgages/

We weren’t in a position to do this for our DC.

But points to consider students don’t generally look after properties well (lack of heat due to cost of living crisis and worries about bills, drying clothes indoors with no ventilation, long hot showers without opening windows etc etc).

Would your student want and or would they be ready for the responsibility of looking after the upkeep of the house (setting them aside from other students and perhaps putting them in an awkward position etc).

I think it's worth considering how the dynamics within the flat/responsibilities for the flat will work.

If the flat is in your child's name then the other rooms I think could be rented out to 'lodgers'. Whereas if you are the owner then the other rooms would have 'tenants' in them. This may have different tax implications but also, different dynamics within the flat. A girl I knew in your child's situation found it quite stressful as the other student who rented the spare room expected her to sort any issues with the flat and didn't take particularly good care of the flat (as the flatmate treated it as any other flat whereas for the girl it was her parents' flat). Your child would have to consider if they'd be happy in a landlord role - and the not inconsiderable legal responsibilities that come with that (booking gas safety checks, electrical safety certificates, paying factors fees etc etc).

My friend did that (deposit from gap year job, days when lenders would lend to students with parents as guarantors). Worked brilliantly and set him up for life. But he was always very responsible and capable.

My parents did this for my sister. It was a total disaster because the other flat sharers stopped paying rent and she had to try to deal with it. They turned nasty on her, calling her a little rich girl, and it ruined her time at uni.

@Riverlee those are fantastic. Thank you!

I think @BollockstoThis1 makes the point better than I did -

setting them aside from other students and perhaps putting them in an awkward position etc

This cannot be underestimated. Being a landlord is a position of big responsibility, especially when things go wrong (e.g. boiler breaks, leak from flat above, repairs needed, disputes between lodgers over things like cleaning etc). These are all routine things that a landlord should be in a position to deal with. I'd recommend appropriate insurances - and these aren't cheap (I's estimate I spend close to £1k a year on insurances for my small non-student rental property). And also detailed tenancy agreements (you can add your own terms to the standard Scottish one - I've added things like the dehumidifier must be used, or windows opened, if drying clothes indoors).

Yes, we were thinking of the dynamics and discussing with DS. He’s quite comfortable with the idea, but we did discuss that there’s two ways it could play out. One where it’s his house with just the spare rooms being rented out to lodgers, and one it’s a flat share where he has one of the rooms, and just happens to also be the owner of the property. Quite different mindsets, ground rules and contracts I would think.

Thanks @Bundeena those are very helpful insights

Stamp duty will be your issue, because it’s unlikely the property would be allowed to be solely in your daughter’s name because the mortgage will be in yours.

You’ll also need to pay income tax every year on the rental income and the capital repayment. You only get relied on interest and certain overheads.

If the property is owned 100% by your son he would be allowed up to £7,500 of rental income tax free under the rent a room scheme.
https://www.gov.uk/rent-room-in-your-home/the-rent-a-room-scheme

Otherwise self assessment tax returns would be needed and as mentioned above higher rate tax payers can't deduct all their mortgage interest as an expense (probably more relevant if you own or jointly own the property rather than your child).

We bought outright (inheritance) in DS’s name, 6 days after his 18th birthday. He was still in high school but he knew which university he’d be studying in. Over the next 8 months the place got new plumbing and wiring, new kitchen, new bathroom and cheap furniture. We got a loan for all that.

In the following 6 years his 3 flatmates’ rent covered the loan repayments and the bills. Yes, he did have problems with cleaning rotas etc. But flatmates changed and he ended up with a nice set. But there was no privacy and he couldn’t wait to live on his own.

We knew the flat was destined to be our retirement property, so it wasn’t rented to strangers or declared as a multiple occupancy business rental.
It never “made” money but it was a way to avoid paying rent to other people while investing our inheritance in our family’s future.

DS got first time buyer’s tax reductions and government grants for energy-saving renovations, which was a help. Now he’s moving to another city and will probably want to buy his own place. FTB benefits have already been used but he’ll get a contribution from us then, too.

So the bottom line is:
will it be a business? Look into the risks and benefits.
is your daughter on board to be the buyer?*
will she want to stay in that city?
is she good with responsibility?
can she tolerate community living for the duration?

Edit: son

If he's the owner though, legally, any flat share would be a lodger, with or without paper contract. Even if it was his partner.

Could he possibly not tell the flatmates he's the owner? Can't think of how he could hide the owners name from them though. It would just depend on them not looking at contracts to closely.

We do this
It was actually desperation at not getting a rental in the same town as the university.
One year in, all well. It will be an investment property for us as we are older.
It is probably a bit nicer than the average student rental decor wise.

This sounds like tax avoidance. Your son "owns" the property and yet it is going to be your retirement property and he is now going off to buy his own property.

It sounds like it was put in his name to avoid paying as much tax on rental income/paying second home stamp duty but is actually your property.

Even with no other income - with 3 lodgers - let's say paying £500 each a month - your son would have been taking 18k a year in rent and should have been doing the land and property pages of self assessment tax return declaring this income.

I think the OP is thinking of buying in their son's ownership because it will actually be his property - not just a tax avoidance scam

Once your son's property is no longer his main home capital gains tax will be due on any increase in the property's value for the period it is not his main home until it is sold (or given away). If he continues to own the property he will have to pay second home stamp duty on his next purchase.

@Winter2020
Im not in the UK. You’re assuming a lot in your post.
£500 a month rent for a start…

@Sgtmajormummy
If the property was in the UK two lodgers is the legal maximum you can have.
If you had three lodgers plus son as LL you were operating an illegal HMO. This isn't 'just' tax avoidance (legal with two lodgers, depending on the rent charged) this is tax evasion.