Is buying your child a student home the right decision?

Starting university marks a new and exciting chapter in your child’s life, but it can also mean big costs for parents - student accommodation being one of the biggest.

With tuition fees in excess of £9,000 and student living costs continually rising, being a student is expensive business. One way many parents are helping out is either by contributing to living costs, or outright covering one of the biggest expenses – accommodation – by buying a house for their child.

There are many ways this can be set up, and the pros and cons of buying your child a university home will depend on this arrangement. Whether they own the property outright, you set it up as a buy-to-let or your child considers a very niche (and restrictive) mortgage known as the buy-for-uni mortgage, we look at both sides of taking on this financial commitment.

The upsides

  • Your child can get a helpful start on the property ladder before they’ve even graduated.
  • They can avoid ‘wasting’ money on rent every month for a property that may not be their preferred choice, and escape the hassle of dealing with landlords.
  • Ease financial restraint by renting out spare rooms to cover mortgage and other costs – essentially letting your child live in the house rent-free.
  • If the property is in your child’s name, they won’t be liable for stamp duty because they will benefit from first-time buyer relief. They may also benefit from the rent a room relief.

The downsides

  • If you’re buying the property for them and you already own a home, you’ll have to pay the additional stamp duty surcharge. This starts at 3% for the first £125,000 of the property’s value.
  • If your child opts for a buy-for-uni mortgage – which very few lenders provide, and can be incredibly restrictive – the 100% mortgage offered won’t cover all the costs involved in buying a house. You will have to account for these. Your residential property will also be required as a security, so there is risk involved.
  • If you decide to purchase the property as a buy-to-let, this is possible but comes with its limitations. The emotional stakes are higher when family is involved, but your legal and other obligations as a landlord still remain, regardless of the tenant being your child.
  • Changing rules also mean that the way the rental income is taxed has also become less attractive, so this is another factor you will have to consider.

Depending on your circumstances, buying a student home for your child may or may not be a suitable option. But wanting to give your child a debt-free start in life is any parents’ wish.

A financial adviser can help you better understand your position as a buy-to-let landlord, or whether a buy-for-uni mortgage would be a suitable option and what the financial implications could be. The adviser can also discuss with you any inheritance tax issues that may arise – an unwelcome tax burden that could affect your child in the future.

An adviser can work with you to see if buying a student home for your child is the right move for you - and your finances.

Your home may be repossessed if you do not keep up with repayments on your mortgage.

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