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Graduate Mortgages
Various lenders are able to offer mortgages for those who are moving on from life as a tenant and a student. Graduate mortgages are available exclusively to university graduates, and are specifically designed for the typical graduates circumstances.
Features of a graduate mortgage
Graduate mortgages often feature a 100% loan to value rate, although some lenders are willing to lend as much as 125% of the value of the home. As a first time buyer it is likely that a graduate will have little or no furniture for their new home. The extra loan capital can be used to help furnish the home and also to help with other costs associated with the purchase.
Some lenders also offer reduced payments during the early years of the mortgage. There are also graduate mortgages available that allow the house buyer to borrow much more than the average borrower can borrow in relation to their salary. In recognition of graduates potential for high salary in years to come lenders help graduates to get on the increasingly expensive property ladder by offering larger loans. For this reason your mortgage lender might request that a parent or guardian will back the additional loan.
Why do lenders offer graduate mortgages?
Graduates are considered to have the potential to earn a sufficient salary to justify the lending risk. Young people are also a target for banks. By providing you with a mortgage when you are young they hope to gain your loyalty and your custom for life. For this reason it is a good idea to find out whether a graduate mortgage is subject to any tie ins before you choose it.
Downfalls of the graduate mortgage
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Since most graduate mortgages offer 100% or more LTV you are arguably the most likely type of borrower to experience negative equity.
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Redemption penalties – Mortgage lenders offer attractive rates for the early years of the mortgage. Once you are transferred to the standard variable rate you may be paying more than you expected. However if you choose to leave the mortgage by remortgaging or selling the home you may have to pay an early redemption charge.
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