Bath restricts 100pc LTV product to direct only
The Buy-for-Uni mortgage is available to students in Higher Education throughout England and Wales and the society will lend up to 100% of the value of the property, subject to a maximum £250,000.
It’s a parental assistance mortgage which can be taken out in sole name of the student or jointly between the student and parents. If the student takes the mortgage out on a sole name basis the parents must stand as guarantors.
If the loan to value is greater than 80% a collateral charge must be placed on the parents’ property as additional security. The student can rent out the other rooms in the property to cover the mortgage payment which must be 125% of the interest at pay rate or a combination of rent and parental income can be used.
Although the society uses intermediaries for its other products it said this product was restricted to ensure both parties, the guarantor and the student mortgagor, were fully aware of what was going on.
Andrew Montlake, director of mortgage broker Corecco, praised the product for its innovative nature but thought the decision not to give brokers access to the product was “bizarre”.
He said: “I understand they may want to have control over its distribution but saying that the reason for doing so is to make sure that everyone is fully aware of the nature of the transaction is a little insulting to brokers.
“The vast majority of intermediaries do their utmost to advise clients professionally whilst in my opinion non-advised lender staff may not quite go that extra mile.”
Mike Fitzgerald, managing director of Brent Chase Financial, agreed that a good broker is perfectly equipped to advise on complex products in some cases more fully than a branch adviser.
He said: “I have a buy-to-let portfolio which includes student properties and I could help clients with questions about capital gains tax for example.”
Mortgage Introducer spoke to Bath about concerns brokers had raised over the 100% LTV aspect of the product and the risk level this posed to the parties involved in the transaction.
Chris Powell, senior underwriter at Bath Building Society, said: “This discussion is obviously part of the sales process. All parties are made fully aware of the risks which go with the product which is why we won’t sell it through brokers so there’s no probability of it being sold for the wrong reasons.”
Rob Killeen, broker at Capital Fortune, said: “We have known about this product for some time. High LTV mortgages particularly at 100% were a significant cause of the credit bubble that burst and with 719,000 UK homeowners sill in negative equity according to figures from the Council of Mortgage Lenders in October therefore this would not be something we would feel comfortable promoting.”
Powell explained that the concept of the mortgage was conservative although it may not sound it and in fact relied heavily upon the parent.
He said: “We insist that there is enough rent to factor in for void periods and we require a minimum income from the parents. Parents need to be able to manage their own commitments so they can assist with the mortgage payments if necessary.”
Ying Tan, managing director of the Buy To Let Business, said he could see the requirement for a mortgage product of this kind but was cautious of the use of a 100% LTV product.
He said: “Any 100% LTV product should be treated with care but brokers have the experience and ability to advise their clients on complex products like this so I am a little insulted that they have chosen to restrict it for this reason.”
Killeen said the latest figures from the Office National Statistics reported that one in four graduates who left university were unemployed.
“The burden of a mortgage on individuals who by their nature will accrue further debt by the end of their studies to us is problematic in assessing long term affordability and suitability,” he said.
Fitzgerald said that putting a charge on the parents home at a time when the parents are getting ready to support a child at university could prove to be problematic later on.
He said: “If a parent wants to help his or her child to get a foot on the student investment ladder there may be better ways to proceed.”
However Powell defended the product by stressing the mortgage is designed for the parents of the student to have greater control over their son or daughter’s accommodation rather than wasting thousands of pounds on a sub-standard student property.