Using student loan for mortgage

[TheDefiant]

My DH and I are trying to set our DC up in a way we never were.

We're trying to arrange a joint borrower, sole proprietor mortgage for our DS at Uni.

Part of this aim is to get him on the ladder as soon as possible and avoid taking out a student loan. He'd have mates in whose rent would cover the mortgage and just so you know, we'd charge half the going rate in the area to pass on the benefit to his mates.

I'm a planner and like to have a back up plan. Do you think, if it came to it, that taking out a student loan after all isn't such a bad thing?

@user989 he doesn't really involve us in his money. Except to tell us he has "plenty" doesn't want a bigger allowance, his food bill is about £200 PCM and his laundry £50 pcm.

He has no utilities right now.

Young Scot card gets him feee bus travel and cheap train travel.

His degree has no additional costs. (All books free etc)

His societies aren't expensive.

His loan is more than his accommodation so he has spare there.

Second year will be more expensive for him as he will have to start paying utilities, insurance, gym membership (free in first year via his accommodation). He'll cope.

It can be sold, my parents did similar for my sister, it worked out much better financially than paying her rent during uni.

Not by the parents because they don't own it. The parents only own the debt, not the asset.

The kitchen is a communal space if it’s big enough. Many in 2 bed flats are tiny. If he owns this that, he won’t be a first time buyer if it’s sold and he moves elsewhere. If the op owns it, it will attract CGT. If it makes any money. Then there’s all the fees. There’s a reason why most rent. It’s quite risky to buy and then move on unless you are fairly rich. Can students get mortgages? It’s effectively buy to let as his only income is rent.

Many students find they move for jobs. Even engineers.

I’m imagining a flat in Maryhill or Muirhouse that OP thinks is a bargain, but will have addicts pissing in the stairwell and a dearth of willing flatmates.

He'll be the owner. Special mortgage type. Joint borrower, sole proprietor.

He will move after Uni and will sell.

I know it's not Kelvinside or Morningside but I also know it's not Muirhouse or Maryhill!

And as someone who had family in Murihouse and Maryhill I can promise you even those areas aren't all bad...they've moved now but still.

Estate agents have told us the areas to avoid. We have list somewhere.

The last paragraph here is alarming. Don’t listen to estate agents. They aren’t going to tell you to avoid areas they’re trying to sell you property in, even if you should.

Or drop out... my good mates parents did something similar for him, he soon worked out that letting property paid better than most graduate jobs, quit uni and started buying a letting property. He's a must millionaire property developer now - we still call him Rigsby, as many of us rented one of his grotty bedsits back in the 90's!

And sometimes its best not to avoid, look to the future, Notting Hill was an area full of slum HMO housing in the 70's, smart people brought cheap!

@MiddleParking of course the estate agents will tell you areas to avoid if they are working for you. It's different in Scotland remember.

I'm probably using the wrong term. Estate agent/solicitor/conveyancer one of that lot.

He will move after Uni and will sell.

And if he doesn't OP? If he drops out and lives in the house rent free, what will you do then?

@WallaceinAnderland that's a risk yes but it a very, very small risk.

DS is single minded and ambitious.

Dropping out and being in debt is a risk whether he rents or buys really.

We'd have to be his guarantor for rent every year and cough up if he failed to pay. At least this way his mortgage is likely to be cheaper than rent if we have to cough up for it.

How long would the term of your mortgage be OP?

I know you say you'd all be happy to sell and break even when he finishes his degree, but what if the property falls in value or is difficult to sell?
I ended up effectively trapped in a house bought in similarish circumstances for years after I finished uni, as despite a 25% deposit, the 2008 financial crisis put me well into negative equity.

I think they know their child well enough to know it would be very unlikely he would do this and from what the OP has written about him in the post, I would also say that’s unlikely

If that happens we'll rent to students until we can sell.

Will do it by the book. I'm a rule follower.

But OP, you won't be able to sell. You won't own the asset. You are entirely reliant on a young 18/19 year old.

All I'm saying is that if the parents cannot afford the mortgage repayments on their own then it is a massive financial risk. A roll of the dice.

If the parents can afford the repayments for the whole mortgage term, or will have the means to pay off the debt themselves, then it is a good investment. If not, well, everyone needs to remember that the parents are taking out a mortgage which they expect their son to pay off. Of course he's agreeing, he is being advised by his parents.

But what if he meets someone who leads him a different way. It's not that uncommon.

No way would I risk financial ruin under this arrangement.

The situation described about finishing the degree and being in negative equity means he won't be 18/19. He'll be 22/23. Big difference and I know what sort of loon he is.

He's got his eyes on a certain prize. He's working towards it now.

He'll need a sparkling record for his ambitions.

Anyway there are things in our future that mitigate almost 80/90% of the risk.

But anyway we'd have to afford the rent payments too?

Don't you see? Same risk. The mortgage will be cheaper than student rent.

I realise if you are thinking length of mortgage versus another 4 years at Uni that's different, but like I say we have things in place that will mitigate 80/90% of the risk within the next 12 months and 5 years.

I think it sounds like a very good idea, it’s something my parents couldn’t have afforded to do as they have 5 kids at University but still we didn’t have any student loans and they paid for everything which I’m grateful for

OP, earlier on the thread I asked 'Can you afford the mortgage payments if he defaults for whatever reason?'

You replied 'Yes. But not for 4 more years!'

So as I understand it, if your son failed to make any financial contribution but continued to live in the property for the next 5, 10, 15 years, you would have to cover the mortgage repayments for the whole term or pay off the loan, or default on the loan. And he would own the house. You cannot evict him, you cannot sell the property. This is where the risk lies.

I understand you don't think that will happen. That's your choice. I'm just pointing out that it would be naive to enter into such a financial commitment if you cannot afford the risk.

Rent payment is not the same risk. The rental contract will only be for one year at a time, it will not tie you in like a mortgage.

Our current mortgage is only 27% of what we could borrow. (the affordability thing)

The decision in principle only adds an amount that takes us to 50% of what we could borrow.

We made a decision a long time ago not to stretch ourself and live frugally for this reason!

Think of it this way.

You are taking out a mortgage so that another adult can own a property.

If this was not your son, I'm guessing you wouldn't do it as it sounds very risky right?

But there's nothing more risky than an 18 year old male. No matter how sensible you think he is.

Once he owns the house, you have no further say in whether or not he sells it or whether or not he contributes financially.

That's all I'm saying. The decision is yours of course and if you are happy with it then that's all that matters.

Ignore the doomsayers that have no experience of this.

I was a lodger of a resident student landlord when I was a student. It was fine except he was quite nit picky about wear and tear which he tried to call 'damage'.

I've also had friends whose parents have bought uni flats for them then they've let a room or two to pals.

It does save massive on rent. (I'm guessing the city he's in and student rent there is ridiculous!!)

You might get hiccups like friends falling out/couples/ the usual flatmate stuff but it would be what I'd do if I had the deposit.

It isn’t doomsayering it’s just lots of us have done the maths and looked at it in detail. We couldn’t currently make it worth our while even being cash buyers. Not when you factor in downtime, repairs, agents fees hassle factor, new environmental/eco requirements coming in etc

op’s son can always sell. However if he didn’t live there himself for any period of time the regulation would be much higher since with three non owner students in it would be an hmo plus once he’s working the tax would be a factor since you can no longer offset the mortgage interest and neither would the students be lodgers

Yes. Son can always sell. If he doesn't live there we'd only let the 2 bedrooms so wouldn't be an HMO.

If he didn't live there we'd definitely be able to take enough rent to cover the mortgage.

The figures work out for us as long as we can get
A 2 bedroom flat
With a separate living room
Decent sized kitchen
At a certain price

We've found 3 or 4 possible flats with these requirements. All within budget. Some needing more work than others.

You know he's listed as the one of the borrowers on a joint borrower, sole proprietor mortgage? So if he fucks around, he'll find out? Will ruin his credit rating etc.

I'm not going to be on the mortgage. It'll be DS and DH. I'm supporting via the deposit and all the research, logistics etc.