In the first of two articles on the costs of higher education, Susannah Kirkman looks at a novel way to save on accommodation
The soaring costs of student accommodation, combined with an upturn in the property market, are encouraging more parents to buy somewhere for their children to live while they are studying.
"I've got friends with three mortgages, two of them for their children, " says Marion James (not her real name), who has bought a house in Cambridge for her son Tim at the start of the second year of his BEd degree at Homerton College.
Marion is hoping that Tim will be able to save on living expenses so that he does not end his student days faced with a mountain of debt.
The National Union of Students reckons that undergraduates on four-year courses, such as teachers, will graduate with average debts of at least Pounds 7,811. Accommodation swallows up a disproportionate amount of a student's income. In London, students will have to spend about Pounds 2,000 a year or almost 60 per cent per cent of their income on housing; elsewhere, the figure is about Pounds 1,500, half their income.
Tim paid Pounds 2,500 for his first year in hall at Cambridge and Mrs James feels he didn't get value for money: "The food was appalling and very expensive," she says.
So Tim's parents sunk their savings and the proceeds from the sale of another property into a derelict end-of-terrace house off Mill Road, a student's mecca as it is within easy walking or cycling distance of most Cambridge colleges.
The Jameses have no mortgage of their own as they live in accommodation provided by the progressive boarding school where they both work. Eventually, they are hoping to use the Cambridge house themselves.
They paid Pounds 75,000 for the two-bedroomed house, which had not been lived in for two years. She and her husband spent six months and Pounds 12,000 renovating the house and creating an extra bedroom. But they look on it as an investment as, less than a year after they bought it, the house is now worth about Pounds 105,000.
Tim currently shares the house with one other student and they each pay Pounds 50 a week rent, including bills, slightly less than the average student rent. Marion has rejected the idea of letting four of Tim's friends share because of the wear and tear it would cause.
However, she has decided against buying a house for their younger son, who is going to study in Brighton. "We've almost made it too easy for Tim; it may be more character-building to let your children live in squalor," she says. "And it's much harder to cut the cord if you've got to keep checking the house and pestering them about the garden."
John Bailey (not his real name) found the only disadvantage of buying a house for his son when he was studying in Wales was that Simon had to play landlord to his friends. Financially, the Baileys broke even by buying a large house in their son's name; the rent from six of Simon's friends paid the 90 per cent mortgage and the interest on the Pounds 12,000 loan for the deposit, which Mr and Mrs Bailey raised against the equity in their own house.
"I thought it was something you could only do if you were very rich, but if you do your calculations right, you can save your child a lot of money by buying them a house," Mr Bailey says.
* Next week: the costs for mature students
RAISING THE COST OF A ROOF
There are three main options, according to Philip Cartwright of London and Country, the independent mortgage-brokers.
* You could take out a second mortgage in your own name. The main disadvantage is that you will not be eligible for MIRAS (Mortgage Interest Relief at Tax Source), which is currently worth 15 per cent of the interest on the first Pounds 30,000 of the loan.
* You could take out the mortgage in your child's name, as he or she will qualify for MIRAS. The disadvantage of this is that you will have to act as guarantor, and most building societies would therefore be reluctant to lend more than 75 per cent of the value of the property. Some are more generous to existing borrowers; Nationwide, for instance, would lend 90 per cent on the second mortgage. If you borrow more than 75 per cent of the value, you will have to pay an indemnity guarantee premium, which works out at about Pounds 1,600 for a 95 per cent mortgage on a house worth Pounds 100,000.
* You could finance the deposit, or even the whole house, by re-mortgaging your own house. Although most lenders will not allow you to raise capital against your own property to finance the purchase of another house, National Counties will allow you to raise 70 per cent for any purpose. They also offer a fixed rate of 7.29 per cent for three years, with no strings attached, or a 2 per cent discount on their base rate, currently 7.79, for two years.
Mr Cartwright also suggests that it might be easier to take out a 95 per cent mortgage on a two-bedroomed flat than on a five-bedroomed house, as building societies are worried about wear and tear in a student house with multiple occupancy.
But you need to bear in mind that property is no longer automatically considered a sound investment. There are signs that price rises are slowing already; the Halifax has just revised its annual price rise forecast downwards from 7 to 6 per cent.
Any returns on your investment will also depend on the location. While house prices have risen by 14.7 per cent in London over the past year, they have only increased by 2.3 per cent in North Yorkshire.
* National Counties Building Society Tel: 01372 744155
* Nationwide Building Society Tel: 01793 513513
* London and Country Mortgages Tel: 0800 373300