Is student accommodation your next lucrative commercial investment?

Monday October 30, 2017

Greater demand for student housing in the UK is fuelling growth in the commercial Buy to Let mortgage market.1 In this blog, we will discuss increasing demand for student accommodation. We will also look at some things to consider before arranging a commercial mortgage to purchase or convert a property for students, and the ‘Buy for Uni’ mortgage product now on the market.

Increasing demand

The number of students in the UK has doubled since 1992, and there are no signs of this population declining in years to come 2. In the first half of 2017, £2.41 billion was transacted in the student housing market, a 24 per cent increase on the equivalent period last year.3 This growth is contributing to making student property the fastest growing sector in the Buy to Let market, giving investors strong returns that are well ahead of standard Buy to Let properties.4

The decreasing value of the Pound Sterling against the Euro and the US Dollar will no doubt entice international investors also into the UK student housing market, too, further fuelling growth. This expansion is particularly noticeable in the North West, which boasts the ten best Buy to Let locations in the UK5, while Luton holds the top spot in LendInvest’s latest BTL report6.

Private rental sector

Purpose built accommodation is popular for students, although this type of commercial property mortgage will require more complex commercial financing (click here to read more – link to UK commercial mortgages page). It is likely that the investor will have to pay cash up front for the purchase5 so seeking professional advice from a commercial mortgage adviser is advisable.

Therefore, a market remains for investing in long-standing houses that have been converted into shared homes for students.7 Such properties are said to be some of the most lucrative property investments in the private rental sector available to landlords8.

Landlords can purchase or adapt their current Buy to Let property to suit the needs of students9. This could involve turning living and dining rooms into bedrooms in order to house perhaps 4 or 5 students in each property. This ensures the highest return, with each tenant paying rent separately.

The majority of large towns or cities in the UK now have a university. Therefore, this opportunity is open to landlords in all regions10. Yet, prospective student landlords must do their research. Below we discuss some points to consider when investing in student accommodation and applying for a suitable commercial Buy to Let mortgage:

  • Location – Peripheral properties are generally cheaper and therefore more attractive to the investor11. Yet, investors must keep the student in mind, where centrality is vital. If investing in a property out of the centre, then transport links to universities are very important12. Sufficient leisure activities in the vicinity are also necessary. Some local expertise or insight may well be helpful here.13
  • Layout – The layout of the accommodation is also key. Communal spaces are essential to students.14
  • Surrounding universities – Investors should be sure to take into account the quality and number of universities near the property if they are going to sustain future demand.15
  • Demand – Demand for student properties is seasonal. Therefore, if you are converting your property, having a robust development plan is of utmost importance to have the accommodation ready on time.16
  • Materials – Student accommodation is built to last, therefore, if converting a property, you should use robust materials.17

Legal obligations

As well as the above it is also essential to ensure that you are able to meet the legal obligations of a landlord. This includes maintaining a proper licence from the relevant local authority, drawing up legal Tenancy Agreements, ensuring the property meets UK safety regulations, carrying out repairs on the property when required, and the upkeep of common areas.18 As you will be letting the property to a number of students, you will also need to ensure that you have complied with the rules around HMO’s (Houses in Multiple Occupations).

‘Buy for Uni’ Mortgage Products

There are also options for students and parents looking to invest in student rental property.

Due to the increasing demand for student accommodation, some lenders are now offering products aimed at students. This product has been described as a ‘gateway’ onto the property ladder for young people, with immediate family providing security for the loan.19 Rental income is generally the repayment vehicle, and if this is not enough then a top up may be required from the guarantor’s income.20

Entering into a mortgage agreement is not a decision to be taken lightly at such a young age. Therefore, it is advisable to seek specialist advice to see if the mortgage product is right for both the circumstances of the parents and the student. Using an expert mortgage broker could get you access to lenders with an appetite to lend such niche products, along with the best terms and rates on the market. You may also wish to use our mortgage calculator, to get an idea of how much you could borrow depending on your monthly budget.

If you would like to know more about how to get a commercial Buy to Let mortgage, then seek professional advice. A commercial mortgage adviser will help you to find a solution that meets your needs and circumstances best and will help you to make the most of your commercial property investment in student accommodation.

The Financial Conduct Authority does not regulate some aspects of Buy to Let and commercial mortgages.


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