PhD student getting mortgage for 120k flat?

trevor.dubois

Hi all,

I would be interesting in seeing what you guys think about my situation. Just before starting I want to ask, if possible, for an unbiased as possible opinion so not one that I've heard from some others I've spoken to that say that is a silly idea and it would never work but instead if the pros and cons of this idea could be suggested in an as an objective manner as possible then that would be great. Thanks!

Caveat: this sounds crazy so brace yourself.

My situation
I am considering the possibility of getting a mortgage during my PhD which I will be starting in September. My stipend will be around 13,000 to 15,000 with opportunities to earn more through tutoring. If I pay rent this will likely cost me £150 a week for the kind of place that I want for the three years.

A possible idea
My logic about getting a mortgage out is that this, roughly, £25,000 pounds that I would spend on rent otherwise could be invested in a property. Also, if I ever am in a period for whatever reason where I am not earning, I could always get someone to rent the property. If any problems occur with the property when I am there or at another time then, as the property I am considering is newly built then it will be under warranty for 10 years and so repairs would not be something I would need to be concerned about for the first 10 years, after which I should have stable work.

The property
It would be a one bedroom flat costing about £120,000. I may be wrong but my understanding is that for first time buyers there is a 20% discount for new properties under the current governmental policy, which I would hope, but I need to read more about this, means this might apply to my situation.

Similar action from more worse situations
I know people who would get a mortgage on a property and people who have very little money and who would rent it straight away and rent it out in the long term and would earn a passive income. Such individuals have done this successfully and I feel their financial situation was much worse than mine which will be me getting a tax free stipend lets not forget, I will not need to pay council tax and my funding is secured for 3 years, that is it is essentially a three year contract for those suggesting there's no security.

What do you guys think of the pros and cons of this then?

Red-Squirrel_2

You won't be earning enough to buy a place worth £120,000, even if you find a lender who will accept a PhD stipend as income. There may be some who will, I'm afraid I don't know which but a good broker will know.

Lenders only like to give you 4-5 x your income at the most, depending on other affordability factors too, so probably about 65-70k tops. What sort of deposit have you got? What other financial commitments?

As for the 20% 'discount', you've not quite got the right end of the stick there. Its a scheme called 'Help to buy' and I believe it involves borrowing 20% from the government on top of your deposit. Personally, I'd do everything I could to avoid getting involved in any of those sorts of schemes. They seem to change every few years, can make it difficult to sell and often just lead to you stretching yourself further than is sensible. Its your decision if you do want to use it though, just make sure you have all the information:

Paully232000

This topic has come up several times here over the years and the general consensus is that it is very difficult, if not impossible. If i remember rightly there was one lender discussed, I think it was Natwest, that would accept phd income for a mortgage, but that was a while ago, before mortgage affordability rules changed.

Even if they did accept this, can you afford a 120,000 mortgage on a salary as small as that, I would suggest not as it is over 8x your salary and most of your income would be taken up in bills leaving you nothing for anything that could need paying for. Don't bank on the 10 year warranty paying for anything, that is what insurance is for.

As for renting it out, this would require a buy to let mortgage, as you are looking at a one bed flat i am guessing you dont mean a lodger, with you living there. I would say it would be even harder, if not impossible to get a buy-to-let mortgage on your income.

Also, you say you may get tutoring income, but again, a mortgage company will not base affordability on what you may get in the future, only on what you have consistently got in the past.

Someone may come along and say it is all fine, but I cant see you getting any sort of mortgage on this salary, ordinary or buy-to-let. I cant see any pros of this idea.

Bean83

I got a mortgage during my PhD, although this was quite a few years ago now and the circumstances were different.

1) I got a joint mortgage, and my partner had a full-time job
2) We had a large deposit

If it wasn't for these factors then I would never have been approved for a mortgage. The lenders who were willing to accept my stipend were Natwest and Cheltenham & Gloucester (now part of Lloyds I think); however, they would only accept a percentage of my stipend, and I have no idea how they calculated this! Having a partner in full-time employment helped our application massively as his earnings were almost enough to cover the mortgage without me. Basically, most lenders will not accept it as income as it is only for a short period of time. Of course, there is the implication that once you have your PhD your earnings will massively increase, but this is no guarantee.

To be honest though, I really don't think you can afford this mortgage even if you can get a lender to consider your circumstances. You will also need a deposit (at least 10% of the property value, and probably even more in your case to make it more affordable).

trevor.dubois

Thanks for all the replies.

Firstly to answer a few questions I have savings of around 10,000.

The buy to let idea is an interesting one.

In general I think that you guys gave a very fair and objective view of the situation so I do appreciate that.

From what you've said I am beginning to understand the many difficulties involved with this idea of getting a mortgage during a PhD.

Buy to let though doesn't sound like the worst idea, but then again, as mentioned, even this could be very difficult.

I'm glad the governmental scheme has been clarified and if it is problematic then it would make sense to avoid it for me.

In terms of what warranty does and does not cover for the first 10 years of the flat, it's a good point that there is a great deal it might not cover so again something for me to consider.

Overall, I do understand the many problems of getting either a buy to let or buy to live in property, and it is a shame about this because property is an area I have been interested in entering for some time.

The only other idea that I would consider is whether getting a 2 bedroom flat, one room to rent out would be good. My partner, will likely have a postdoctoral position at the university where I will be doing my PhD so we could live together in one room and the other room could still be available for rent. Also, my partner's savings are higher than mine being at about 20,000-30,000. But there are too many uncertainties such as whether she will be likely to have a postdoctoral position at the same university.

I feel that I have got the ability to earn if I really need to after the PhD even if there are no positions available because before my university education I had experiences in sales which means I could always work in sales if I have a period of having little work. Also due to my sales experiences I have been able to earn up to 30,000 from this meaning the ability to earn money due to lack of work is likely to be less of a problem.

However, ultimately it does seem that once by PhD is finished and I will be able to look for and hopefully find a job in my PhD area, I would be in a much better position to think about property. Now perhaps it would be better for me to focus on the PhD itself which would be hard I imagine and then focus on rent once money will be less of a problem.

Okay I feel that you guys have helped me come to my decision of not going with any kind of mortgage option during the PhD and considering this after only about 3-4 years when the PhD finishes which is not even that long.

Thanks again

ACG

Im not sure where to begin but there are a lot of assumptions in your initial post that are wrong:
10 year guarantee does not avoid the need for repairs at your expense. The warranty is there to cover defects from the build.

You can not rent the property out unless you get consent to let from the lender (which they do not have to grant).

Your stipend will make it very very difficult to get a mortgage, I had a similar enquiry last week and could only find one lender to accept it. At best you would get a mortgage of £70k.

Forget other people, its your situation we are looking at.

I think you need to knock this idea on the head as its just not going to work in its current "format".

footyguy

^^^

... and the 20% off scheme for first time buyers doesn't apply to any property that takes your fancy.

It's specifically built properties only, typically built on brownfield sites, and limited to 100,000 in total.

All you can do at present is register your interest in the scheme.

Who knows if/when anyone will actually build them.

https://www.gov.uk/government/news/young-first-time-buyers-can-register-online-for-100000-cut-price-homes

bitethebullet

Hi there. I had a mortgage as a PhD student in a joint application with my boyfriend (although he wasn't working at the time!). If I remember correctly, the university was cited as my employer despite the fact my stipend came from the mrc. This is however a number of years ago now and I suspect it might not be as easy any more.