Students offered 100% mortgages to become landlords

Students are being encouraged to become landlords by taking out a mortgage under a new scheme launched this week.

Undergraduates can take out 100% mortgages on properties worth up to £250,000 then rent out spare rooms to cover the repayments.

The package is being launched by Bath Building Society, which claims to be the first lender in the UK to offer such a deal to students.

The product is aimed at students in Bath and Bristol, but could be expanded to other university cities.

Malcolm Graham-Jones, the building society's head of lending, said it was a good way to get on the property ladder.

He said the student would need the support of parents, who would have to use the equity in their home as collateral for the loan.

Mr Graham-Jones said: "It is based on the idea that the mortgage would be covered by rent from the spare rooms.

"At the end of the day, it will help students get into the property market.

"It will also help parents, who will have the peace of mind of knowing their children are living in decent quality housing."

He added: "Local residents will also benefit, because if a student is living in his or her own property they will look after it and help look after the local environment better than if renting from an absent landlord."

The mortgages start at a discounted 5.4% rate while the student is still at university before rising to the society's variable rate.

Mr Graham-Jones said although parents buying houses for their children was becoming more common he believes the society is unique in offering students a mortgage.

He said: "I haven't seen anything else at all like this. I think we have got a bit of a winning product here."

The Council of Mortgage Lenders said they were not aware of any other products targeted specifically at students.

A spokesman said: "Other 100% mortgages do exist, but when it comes to student mortgages I am not aware of any others."

The vice-president of the student union at Bath University, Tara McNally, said she was not sure how popular the new scheme would be.

She told the Bath Chronicle: "Many students are getting into more and more debt and the prospect of top-up fees is looming. Would they want to add a mortgage to that too? I don't know."

But she added, becoming homeowners could help students bridge the divide between town and gown in Bath.

She said: "If some did, it would create more of a link with the communities they live in which could provide a benefit to the areas they live in."