With impressive yields compared to standard buy to let properties and a steady demand year on year, an increasing number of landlords are choosing to invest in the student let sector. Buy to let consultant, Charlie London, discusses how to become a student landlord...
Why Student Lets?
2018 was a record year for the number of young people going to university. According to UCAS data*, 27.9% of 18-year olds in England were accepted onto a university course, closely followed by 26.3% in Wales and 25.9% in Scotland. This equates to 363,960 UK students in total, demonstrating a continued and ever-growing demand for higher education.
Not only is the UK desire for higher education increasing, the number of international students has continued to steadily grow – with an increase of 4% in students coming from outside the EU in 2018. Seemingly, despite the average student coming out of university with more debt than ever, this has not hindered market growth.
Whilst at university, around 54% of students rent rooms or houses from private landlords**. This is largely due to the lack of university owned accommodation, a problem which is unlikely to be reversed.
The novice landlord may be put off at the thought of renting a property to multiple young people, but for those keen on maximising their investment, it has become a key area of growth in the buy to let sector. Student lets, like standard HMOs, are usually higher in yield than their more vanilla buy to let counterparts. Coupled with a continued, high demand for property in the area due to the presence of the University, it makes for an attractive opportunity to the savvy investor.
What are students looking for?
The average student lives within a 20-minute walk of their university**. Most universities have strict rules around letting cars on campus or are city centre based, so it’s very common for students to rely purely on walking and public transport… so location is key.
Standards of living have increased significantly over the past few generations. Basics such as clean and modern interiors, with features such as ensuites and quality broadband have become standard in purpose-built accommodation and this is now translating into the private sector too. In areas such as London, wealthier students are looking for top of the range accommodation luxuries such as gym facilities and prime locations.
Get your timings right…
As shown by recent research by Save The Student, students start the hunt for their next year’s accommodation almost as soon as they go back for the new academic year. Competition for the best houses is fierce! This is unusual compared to standard buy to let properties as it allows landlords to fill space often 6 months in advance. However, if you are bringing a new property onto the student market it’s crucial to make sure it’s ready to be marketed at the right time.
What about finance?
Some lenders will accept student let property applications on vanilla (standard buy-to-let) products, if you have 4 or less sharers on a single tenancy (AST). When you reach 5 or more tenants in the property, it moves into HMO territory and lenders will require you to take an HMO specialist product.
There are plenty of products out there which are available to borrowers through either the personal name or through a limited company. Most lenders will require you to have experience of being a landlord, through either previous HMOs, or standard buy-to-let properties. However, this is not always the case and if you have no prior landlord experience I would strongly recommend that you speak to a mortgage broker who can help advise you on the best product for you.
Landlords have been looking at different ways to improve their yields following the tax relief restrictions announced in 2015, resulting in student lets and HMOs generally becoming a more popular option. This interest has encouraged competition from lenders and as they seek to find new areas in which to lend to boost their lending figures, mortgage rates have certainly come down.
What to watch out for
Most lender offer conditions will preclude the borrower’s own children living in the property, so, if you are looking to buy a property for your own child to live in while studying you should take advice from a mortgage broker on the best product for the property.
Beware of licensing requirements for the property. If the property is large enough to be categorised as an HMO it’s imperative that you check with the local council if it needs a license. If it does, you will need to understand if lender requires the license to be in place for completion, or if you need to have applied for it at time of application, etc.
Whether you are looking to invest in your first student let, are looking to expand your portfolio, or are simply looking to secure finance to refurbish your existing properties, we are here to help! Contact me on 01732 471 604 or email me on firstname.lastname@example.org