Leaving university, getting your first full-time job and thinking about your future can all be daunting prospects. One of the initial factors is rent. If you are living away from home, rent can be a real drain on income, particularly starting salaries.
Many graduates are thinking about buying as soon as they leave university, and lenders have capitalised on this by creating graduate mortgages.
Graduate mortgages are a relatively new sector of the mortgage market. Usually, graduate mortgages are typified by zero deposit, low set up fees, good income multiples and flexible features, and most importantly up to 100 per cent Loan to Value. In this instance a parent or guardian acts as a guarantor, securing a loan against their own assets for the percentage above their child’s earnings.
Once the mortgage borrower is making enough to cover repayments on the whole loan, the guarantor is released from their position.
Graduate mortgages are typically available to people who have been employed for over 12 months and who have graduated in the last seven years. Often, the loans include lending to cover costs associated with taking out a mortgage and buying a house, such as legal fees and stamp duty. Borrowers should avoid loans with MIG (Mortgage Indemnity Guarantees), now known as HLC (Higher Lending Charges.)
Income multiples are usually up to four times the borrower’s salary, although some mortgage lenders will go above this. For those graduates who qualify as professional, some lenders such as Scottish Widows and Natwest will offer enhanced income multiples.
To apply for a graduate mortgage, the borrower must be over 21 years of age and have a degree standard certificate from a UK university.
The borrower must also be employed on a permanent basis, and have passed any probation period set by their employer. Banks are likely to look closely at student debt and credit card debt to ensure borrowers can afford repayments.