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As the number of university students increases, so does the demand for student accommodation. With impressive yields on offer, we explain where the highest yields are, what students look for in a property, and how to finance one.

Why invest in student lets?

The number of students applying for university in the UK has remained steady since the pandemic, with 596,590 UCAS applicants in 2023, down slightly from 610,720 in 2022.

With the influx of new and returning students moving to university towns each year, the student let market promises to offer landlords a worthy investment. According to Save the Student, 46% of students live in private rented accommodation during term time (up from 40% in 2022), and the number of first-year students living in PRS properties increased by 6% in 2023

Some landlords may be hesitant to enter the student let sector, as historically, students haven’t had the best reputations as tenants. However, as many students lets are HMO properties, they attract higher yields than their vanilla counterparts.

Research from Paragon Bank revealed that student buy to lets can generate average yields up to 18% higher than a standard rental home, which promises keen investors a generous return. Furthermore, yields for these properties have increased from an average of 5.63% in September 2020 to 6.66% in August 2023. Coupled with an increasingly high demand, student let properties make for an attractive investment opportunity for any buy to let landlord.

Where are the highest yields for student lets?

Where you invest will, of course, be a critical factor in your investment decision. According to recent data, properties in smaller towns and cities offer property investors the highest yields.

Top 5 Locations for Student Lets

Location

University

Average Rental Income

Average Property Valuation

Rental Yield

Stoke-on-Trent

Staffordshire University

£13,730

£145,813

9.42%

Swansea

Swansea University

£18,695

£202,750

9.22%

Crewe

University of Buckingham

£15,154

£170,722

8.88%

Gloucester

University of Gloucestershire

£25,656

£305,333

8.40%

Aberdeen

University of Aberdeen

£11,349

£136,895

8.29%

 Source: Paragon.

What do students look for in a property?

As mentioned above, location is critical for a successful student let property. According to Save the Student, the average student lives within a 24-minute walk of their university campus. As most universities restrict the number of campus parking permits, most students either walk or use public transport.

While the term student accommodation may conjure images of tatty “digs”, this is not the case anymore. The quality of accommodation is another crucial consideration for house-hunting students; ensuites and fast internet have become standard in purpose-built student accommodation (PBSA), translating into the private rental sector, too.

Spacious bedrooms are also a sought-after feature for many students, so they will likely help your property stand out and draw in some interest.

Properties with clean, modern interiors attract higher rents, so while this may require some initial refurbishment costs, it’ll put you in good stead with high demand.

When do students look for accommodation?

The academic year in the UK may be September to July, but don’t be fooled. Students start hunting for next year’s accommodation within the first term. Research by Save the Student shows that November is the crucial month: 12% will start looking before then, and 18% will begin the search during this month. The second peak comes in January when around 16% start the search; however, it’s well known that competition for the best accommodation is fierce.

Rental Reform and Periodic Tenancies

The success of the student let market has relied heavily on the flexibility of the fixed terms, as students are generally only looking to rent between the academic year mentioned above. These terms allow landlords to seek new tenants in time for the next academic year, and students can return home during the summer and begin a new tenancy in September. However, this is all set to change.

In its place will be periodic tenancies, which could be a challenge for many student landlords. Instead of the flexible contract, a set period will be in place, meaning that the consistent supply of properties and tenants at the end of the popular fixed terms will be gone.

For new property investors coming to the market, this change in regulation may be confusing to navigate. Indeed, for properties under Article 4 Directions, which restrict landlords from changing between letting to families and HMOs, could mean much longer void periods.

Following substantial lobbying from the NRLA, the Government has agreed that more needs to be done to support the student market with new periodic tenancies. The Government has pledged to “introduce a ground for possession that will facilitate the yearly cycle of short-term student tenancies”, which “will enable new students to sign up to a property in advance, safe in the knowledge they will have somewhere to live the next year”.

The extent to which this will support landlords and tenants is yet to be seen.

How do you finance student let properties?

If you have four or fewer tenants on a single tenancy (AST), some lenders will accept student let property applications on vanilla (standard buy to let) products. On the other hand, if you’re looking at properties that can accommodate five or more students, you’ll move into HMO mortgage territory.

Plenty of products are available to both personal name and limited company investors. Most lenders will require you to have landlord experience through either previous HMOs or standard buy to let properties. However, some will consider first-time landlords, so if you have no prior landlord experience, speak to a mortgage broker who can help advise you on the best product.

Landlords have been looking at ways to improve their yields following the tax relief restrictions announced in 2015, resulting in student lets and HMOs generally becoming more popular. This interest has encouraged competition from lenders as they seek to find new areas to lend to boost their lending figures, meaning their mortgage rates for student lets are much more competitive.

Things to consider when investing in student lets

It’s important to note that purchasing a student property for your child/relative won’t be as straightforward as a standard buy to let mortgage. Not all lenders will allow family tenants, so you must consult your mortgage broker about getting suitable property finance.

If you intend to purchase a student property, remember that four or more students renting out the property will make it an HMO (House of Multiple Occupancy). Certain planning restrictions may be in place in the local area that will dictate if this type of tenancy is even allowed, and you may need to acquire a licence. If it does, you will need to ascertain whether your chosen lender requires the licence in place before completion or whether they will accept proof that you’ve applied for one at the point of the mortgage application. Again, your broker will be able to help with this.

What next?

In terms of further information on rental reforms, we will keep you informed once we know more. In the meantime, if you’re interested in a new property investment, then please get in touch. Our whole-of-market brokers have the experience to help source finance tailored to your needs, and would love to hear from you. Submit an enquiry here, or call us on 0345 345 6788.

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