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Mortgage advice for parents and students wishing to purchase student property. A guide to buying and renting property for students.

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Buying student digs for your children.

Buying a student house can work out cheaper than renting for some families - providing the cash is invested sensibly.
Many universities are short of accommodation as every year sees a huge influx of extra students from home and abroad. Often the best university digs have gone before freshers get to find out about them and many have to share rooms designed for one student in overcrowded halls. Edge Hill University, Ormskirk, Lancashire, has 300 sharing chalets at the local Pontin’s holiday camp; Lincoln University has set up a hut village on campus and Aberystwyth University has hundreds of students doubling up on bunk beds in single rooms. Other universities, like Cumbria and Manchester Metropolitan have sent out an SOS to local landlords to open their doors to more students.
Finding accommodation is likely to become harder as more students clamber for places to improve their chance of finding a well-paid job as the employment market collapses for young adults.

Student accommodation options.

The options are simple for parents hunting for reasonable accommodation for a son or daughter at university -

• Rent a room in halls - This is the most expensive choice but also the easy option. Expect to pay up to £145 a week depending on the university. This accommodation is scarce - the universities can offer around 675,000 beds to the 2.5 million students jostling for a space.
• Rent a private room - This market is a mixture of private halls and private landlords letting shared houses. By far the majority of rooms are in shared houses. For instance, the UK’s largest corporate halls provider, Unite, only has 42,000 bed spaces.
• Buy a student property - An increasingly popular choice for families who want their student children to benefit from living in good accommodation.

Where to buy.

If you are buying in a one university town, then the choice is really made for you, but in larger cities with two or more universities, savvy landlords are buying homes that can service both campuses.

A home near road and rail links to both gives a bigger choice of students when looking for housemates.

Crunching the numbers.

If you decide to buy, you need to think about how the numbers crunch.
Assuming a family decide to buy an average priced house or flat with two bedrooms as student digs, then expect to pay around £165,000.
The deposit is likely to be 25 per cent - £41,250 - leaving a mortgage of £123,750.
An interest-only mortgage at five per cent would cost £515 per month. The other cost to add in is buildings insurance at around £15 per month, making the monthly outgoing £530, or £122 a week.
On top of this come the variable costs that can be as cheap or expensive as you want to make them -

• Furniture and appliances etc
• Satellite TV
• Broadband and wi-fi - a good connection speed is essential for a student let
• Energy bills

Students do not pay council tax in a rented property, providing all the tenants are students.
Check with the local council before buying - if three or more unrelated tenants live in a property the house becomes a small ‘house in multiple occupation’ or HMO. Many councils have special rules to manage these properties that can require expensive fire safety upgrades, applying for planning permission and licensing that can add thousands to the cost of buying.
The figures above are calculated on the assumption parents buy a two-bedroom house or flat and let one bedroom - this way the extra costs of complying with HMO legislation is avoided.

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Finding a mortgage

Parents can set up any buy to let or second home loan to finance their student property, however, a new package service with Northstar Homes / Uni-Commodation and their Building Society partner, www.northstar-homes.co.uk uniquely offer a combined scheme specially designed for the purpose of enabling a student to buy a property in their own name with up to 100% funding. Northstar Homes provide the service in sourcing a suitable property and the specialist building society supply the funds. The combined package is an effortless delivery of an appropriate property throughout England and Wales for busy parents and preoccupied students. Up to 100% of the value of the property can be potentially borrowed, to a maximum £250,000 outside of London and up to £350,000 within. Servicing the mortgage is crucial and therefore selecting the appropriate property in terms of quality, desirability, condition, location and income generating prospects, is key. The package is designed to be self funding so that the student/owner lives rent free and potentially benefits from property capital growth in the fullness of time. This may even help pay off students debts.

Charging tax free rent

Moving in a friend will help with the mortgage costs. HM Revenue & Customs has a special deal for homeowners or tenants who let a room in their property that allows them to earn £4,250 a year tax-free. Called the Rent-a-Room Scheme, the cash is exempt from tax and does not even have to be declared on a tax return. Some other tax rules can dent what started out as a good money saving plan - so beware of these traps: If mum and dad own the student house, they have to pay income tax on any rental income, but can also set off any expenses, like the mortgage interest, repairs and buildings insurance, to reduce their profits. If they allow a son or daughter to live in the property rent-free or to pay a below market value rent, they risk the digs becoming an ‘uncommercial let’ - which is a tax neutral transaction with no tax on profits but no relief on expenses either. Handing the property to a son or daughter also means they cannot claim relief for their property costs, but does solve another tax problem - who pays for any capital gain.

Dealing with capital gains tax

Who owns the property also has a significant tax impact in later years when the family might want to sell. Hopefully, the housing market will pick up in a year or two and prices will start to rise again, even if they increase at a much slower rate than in the lead up to the credit crunch. If mum and dad own the property, they pay capital gains tax on any increase in the value of the home, but a son or daughter who owns the home pays no capital gains tax for the time the property is their main home plus an additional 36 months.

Telling the tax man

If the letting property is simply a home for a son and daughter at university who let a room to a friend, no income tax returns are required unless the rent received exceeds £4,250. If the income is more than the Rent-a-Room limit, then tell the tax man about the income within three months of the date letting starts. HMRC will tell you if they want you to make a tax return. Depending on ownership, the tax man may want a slice of any profits when the property is sold. Even if no income tax returns are needed, tell your tax office by October 1 that follows the end of the tax year that you have sold the property. For example, you sell in January 2011, so tell the tax man about the sale by October 1, 2011.

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