Is Investing in Student Housing Still an Attractive Option in 2021?

30 Dec 2020

Is Investing in Student Housing Still an Attractive Option in 2021?

While 2020 has had a dramatic impact on the housing market, and indeed on the education system, universities continue to draw record numbers of applicants.

As the number of students accessing higher education across the UK grows, so too does the demand for good quality student accommodation.

Many investors are taking advantage of lucrative opportunities to snap up rental properties in key university towns with the current Stamp Duty holiday and low-interest rates on mortgage borrowing.

So, what does it mean to be a student landlord, and what do you need to know before you decide to expand your property portfolio in this direction?

Are Student Lets a Viable Investment Option?

Despite the pandemic and rise of remote learning, UCAS reports that 2020 university application numbers hit a record high. There were over half a million undergraduate degree applications, an increase of 1.6% on the previous year.

Nearly half of all young people completing college education go on to university. There was an additional 10% increase in overseas university applicants this year, with 90,000 applicants from outside Europe.

If you're thinking that rental income from students isn't likely to be as high as for longer-term lets, you'd be right!

However, there is a great deal of assurance that student lets will always be in high demand.

While students in some cases aren't the ideal tenants, and there are maintenance and repair costs to consider, a student rental property is a worthwhile investment given the continual turnover of new university placements looking for places to live.

What Should I Look for in a Student Rental Investment?

There are a few key criteria to consider when searching for a rental property to let out in the student accommodation sector:

  • Quality accommodation in good repair will be in higher demand and achieve a better rental value.
  • HMOs can be an excellent choice for experienced investment landlords and house multiple tenants at once.
  • Ensuite bedrooms are a big draw, allowing students living in shared housing better privacy.
  • High-speed Internet is another plus point and a must for most modern students.
  • Spacious bedrooms are a top priority, and also command a better rental income.

Of course, the other vital factor is where your student let is based. It needs to be within around 20 minutes walk of a university campus to be viable, since most students will not have their own transport, and will be reliant on public transport services.

Many universities have parking restrictions or grant a limited number of permits a year, so being close to bus routes or rail links, or having cycle racks outside is also a positive.

When Do Students Start Looking for Rental Properties?

Timing isn't so crucial once you have an existing rental property. When a tenant leaves, you can market the property again, or might have a revolving tenancy scenario if you have multiple tenants completing courses of different lengths.

Initially, it's worth remembering that while the new term usually starts in September, students will usually start looking for a place to live the term before.

For example, a student in university dorm accommodation in year one might start considering a private tenancy in September, to begin the following September when they enter their second year of studies.

Therefore, you can market a student rental property as far as months in advance. Research by Save the Student shows that:

  • 12% of university students start looking for a home before November.
  • 18% start looking in November.
  • 16% begin searching for rental properties in January.

An excellent bonus for investment landlords is that you can pre-agree a tenancy contract, knowing when your new tenant is moving in, and giving you plenty of time to prepare the property.

Which University Towns Offer the Highest Rental Property Yields?

For student landlords, it's vital to know where to invest. You might be interested in purchasing a local property and managing it yourself, or might be open to any location, using a local lettings agent to look after the tenancy on your behalf.

Some of the most valuable student accommodation markets are as below, using figures from Howsy:

University:

Average Property Price:

Average Monthly Rent:

Average Rental Yield:

Dundee

£146,000

£876

7.2%

Aberdeen

£101,035

£576

6.8%

Strathclyde

£160,147

£883

6.6%

Leicester

£121,517

£664

6.56%

Aston University

£145,640

£793

6.5%

Leeds

£138,775

£741

6.4%

Nottingham Trent

£160,099

£852

6.3%

Newcastle

£154,535

£816

6.3%

Liverpool

£143,576

£730

6.1%

Cardiff

£172,917

£843

5.9%

 

Interestingly, London is not a key location for student investment properties - despite having some of the highest property prices in the country and several leading universities.

Rental yields in London are on average much lower:

  • London School of Economics and King's College London student properties both generate an average rental yield of 2.3%
  • Imperial College London student housing generates an average yield of 1.7%

Income from London student housing is much higher, in line with the property's price, but the total yields on that investment are likely to be lower as a proportion of the investment value.

What Sort of Mortgage Do I Need to Invest in a Student Let?

There are a range of mortgage options - and a lot depends on what sort of property you are buying, and what level of mortgage you need.

  • Buy to Let Mortgages can be relevant, usually if you are investing in a single tenancy property or a home that will house four or fewer tenants at any one time.
  • Properties that house five or more people will usually be considered an HMO, and therefore you'll need a more specialist buy to let product.
  • Many lenders will need evidence of landlord experience to offer an HMO mortgage - although the Revolution team can always assist if you need a niche mortgage and fall outside of the usual eligibility criteria.
  • Some larger properties and HMOs require licensing from the local authority, so it's wise to check before investing. Many mortgage lenders will have conditions about whether the license must be in place before the mortgage completes, or whether it needs to be secured within a particular time frame.

Rates and terms are also dependent on what sort of deposit you have available, what the rental income is anticipated to be, and the property's overall value.

For more information about investing in competitive student rental markets, and securing a buy to let mortgage at low rates to maximise your returns, get in touch with the Revolution brokers team on 0330 304 3040, or drop us a message at info@revolutionbrokers.co.uk.

Contact us now to discuss your personal options, Revolution Finance Brokers specialise in commercial and residential finance in Essex, Kent, London and Hertfordshire.

 

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Almas Uddin

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