As a parent, you may be considering setting up a fund to pay for your child to attend university. Given that a 3-year (on average) undergraduate course at a university in the UK can currently cost up to £27,750 for students from the UK, and as much as £75,000 for international students, planning ahead is an incredibly shrewd step.
The amount you will need to earn or save all depends on what university your child will attend, for how long, and whether you are from the UK, the EU or elsewhere in the world. Not to mention you may also want to consider whether you will need to save money for additional costs, such as visa applications, living costs, school supplies, etc.
Given the timeframe and the amount of money you may need, investing in property can be a great way to build this fund, and possibly make some money in the long run!
The growth of capital from rising house prices is a key consideration for a long-term saving goal, such as a university fund. In 2016, house prices in the UK have risen by 7.7% on average, with the growth in key cities being as much as 10.8%. For example, if you average this out over the course of 18 years, you should easily save enough to pay for university when investing in a £100,000 property. Not to mention you will be gaining income through accrued rent as well.
On top of the gain from capital growth, you could potentially put aside some or all of the annual rental income from your investment property. Whether or not you can save some or any of the rental income will depend on whether you have used cash or a buy-to-let mortgage in order to purchase your investment property. Naturally, if you have a mortgage, the rental income will need to cover your mortgage payments first.
If you have the cash upfront you might perhaps wonder if it is worthwhile to invest it into property, or just keep it in a savings account until such time as it is needed. Nowadays the answer is very clear though. By investing in property, you can really make your money work for you as rental yields far exceed any interest a bank might offer. Thus, providing you with a superior additional income option that you could use to fund your child’s future university education independently of your personal earnings.
Depending on when you decide to start a fund for your child’s university fees will dictate to some extent how much you can earn, and this in turn will affect whether or not a property investment is the right route. If you purchase your property shortly after your child is born, you have a long period over which to save for the university fund. However, if you are only starting to save towards this goal when your child is say 12 – giving you approximately 5 years to save for your fund – you can still gain a substantial sum through property investment towards that goal, and there’s one consideration in particular that can make property investment an excellent option – location.
Indeed, if you’re looking at making an investment in property to help pay for university, but there are only a few years before your child will be applying, you could still make it work! If they know where in the UK they would like to study, one option would be to purchase an investment property in that specific university city. You can rent it out and collect the rent from it until your child is ready to attend university and then they can live in it themselves, eliminating one of the largest costs of sending your child to university in the UK.
As an added bonus, you can either keep this as an income producing asset, or sell it off to invest in something further along in the future. But this possibility is dependent on being sure what city/university your child wants to study at and it being a city where this is actually economically viable. For example, if they want to study in London the upfront cost of purchasing a property will likely make this option prohibitive and quite uneconomical, whereas if their heart is set on studying in say Liverpool, where property prices are considerably lower, this could certainly be a wise investment option.
Taxes and Stamp Duty
Taxes and stamp duties will of course play a big role. It might be wise to consider actually putting this additional property in your child’s name. Meaning if in the worst case scenario something happens to you, then your child is not burdened by additional inheritance tax. Plus, if you already own a property in the UK, you might be susceptible to stamp duty. If this is the case, you can avoid this altogether if you put the property in your child’s name. These are things each investor has to weigh up and consider before making an investment, but it’s always good to think about the different options available.
The UK has traditionally been seen as a safe haven for property investment. Whenever the world is affected by economic turbulence many look into putting their hard earned wealth into property in the UK. This has happened historically in the UAE, Asia, Russia, and now most recently the USA with the presidential elections taking place. When uncertainty or currency unpredictability kicks in, sales of property in the UK increase.
Recently, we’ve seen a lot of our clients have already been thinking about this, and indeed we have received numerous enquiries relating to this. Savvy parents/investors are already looking to buy-to-let as a means funding their offspring’s education. The thought is “buy now and sell in 10 years” to pay for their kids to go to university in the UK. By planning ahead and weighing up all the options available you can reduce the risks and increase the likelihoods of making sound investments.
If you’ve been thinking about investing in property in the UK then why not check out our post about Why Brexit Can Be a Great Opportunity for Property Investors. Alternatively, why not jump straight in to see what we have available if you already know you want to invest in student property.