Stereotypes are diminishing as landlords learn students make great tenants
As a Landlord, you may have steered clear of the student market in the past. But student accommodation is not what it was ten or twenty years ago. Today, the student housing market is exceptionally diverse.
The UK’s top universities are consistently ranked among the best in the world and have long and illustrious histories. For many students, leaving home to study is an exciting first taste of freedom and life in ‘the real world’, making the private rented sector an integral aspect of the higher education experience.
Students make up a large proportion of the UK’s population and it is no surprise, therefore, that they make up a large proportion of the UK’s private tenants. But there are a number of common misconceptions that exist among some property investors about renting to students that may put them off or cause some concern when thinking about including student lets in their portfolios.
RENTAL INCOME
For many landlords, the decision whether or not to rent out a buy-to-let property is usually centred on two key factors: How much will the rental income from this investment be each month? How much will it cost in terms of maintenance, management and other factors?
Seemingly undeterred by the threat posed by COVID-19 and the impact this may have on the teaching and social aspects of student life, 2021 saw another record year for student applications[1].
Recognising this, the student letting market has been very popular with many private investors. Landlords who have adapted their proposition to cater to this niche sector have seen healthy and growing demand, the stability of parental rent guarantors and the ability to achieve attractive yields.
HIGHER YIELDS
Rental yields are an important consideration for investors and historic data reveals a trend of higher yields among those who let to students compared to those who don’t. It is unsurprising that when asked what is appealing about letting to students, according to a ‘Studying student buy-to-let’ market report, 79% of landlords cited rental yields[2].
For landlords who prioritise yields, the report highlighted that single university locations, where student populations are typically below 25,000, appeared to offer some of the best investment opportunities.
One reason for smaller towns and cities faring particularly well could be the observation that they will typically have a lower proportion of purpose-built student accommodation, which has become more commonplace in major cities, whilst major cities also offer a wider array of property that students could rent, such as city centre apartments or build-to-rent schemes.
MOTIVATORS OF LETTING TO STUDENTS
When asked what is appealing about renting to students, 79% of landlords stated that it is the ability to generate rental yields, rising to 83% among active student landlords. This is closely followed by parents or guardians being reliable rent guarantors, appealing to 64% of survey respondents, and reliable demand, which was chosen by 63% of landlords who let to students.
For some landlords there is a positive social aspect of letting to students, with 16% stating that the ‘Feel-good factor of providing housing for the younger generation’ is appealing. Other factors landlords considered included the appeal of shorter term tenancies (26%) and the availability of stock (10%).
The survey found that 33% of landlords think it is likely that they will purchase a student let property in the next 12 months, rising to 50% among landlords who have 11 or more properties in their portfolios.
Landlords were also asked how likely they would be to sell property during the next year, to which 83% responded that it was unlikely.
WHAT STUDENTS WANT
In some cases, there is a considerable gap between what an investor deemed to be important when purchasing the property and what they now know after marketing and letting student accommodation.
The proximity to the university campus was deemed to be the most important factor by landlords, but students placed a greater importance on good Wi-Fi and a competitive rent level. At the other end of the scale, the energy efficiency of the property and proximity to a gym were deemed less important.
STUDENT LETTING CONCERNS
The relatively low number of landlords who include at least one student let in their portfolio could be explained by a number of factors, one being the perceived increased risk posed by this tenant type.
When asked what, if anything, concerns them about letting to students, the most common answer was the competition of build-to-rent or purpose-built student accommodation (PBSA), which was chosen by 38% of respondents, rising to 40% among active student landlords.
Property damage was the second most common concern, chosen by 31% of all landlords surveyed but, suggesting that the risk is actually lower than some perceive, the proportion falls from 66% among landlords who would consider letting to students to 22% among those who currently do.
The research revealed 25% of landlords reported an increase in student tenant demand since the start of the COVID-19 pandemic and 55% reported no change, while the remaining 20% felt demand had decreased.
Although student numbers can be affected by the macro environment, particularly government policy, 63% of landlords who were asked what appeals to them about letting to students stated reliable demand, making it the third most popular choice.
This may be because, as we’ve seen, while there have been some dips in university applications, the trajectory of student numbers is one that travels upwards overall. In addition, this section of the buy-to-let market benefits from the predictability of seasonal demand, with tenancies commencing before the first academic semester in September and lasting for a period of between 9 to 12 months.
NON-STUDENT DEMAND IN UNIVERSITY LOCATIONS
Although the report looked at student lets, it is interesting to recognise the opportunities that also exist in providing homes for those associated with universities for means other than study. Universities are often among the largest local employers, with 19 UK institutions directly employing more than 5,000 people, and ten of these accounting for at least 5% of all jobs in their local authority area.
Although single university towns and cities often perform best in terms of yields, employment is boosted to a greater degree in locations with more than one institution.
LOOKING TO SECURE A BUY-TO-LET MORTGAGE THAT SUITS YOUR NEEDS?
Looking for that next buy-to-let opportunity? Or want to switch to a new deal or borrow more. We can help you. To review your options, contact The Surrey Mortgage Broker – telephone 01252 759233 – email info@thesurreymortgagebroker.co.uk
Source data: [1] https://www.ucas.com/corporate/news-and-key-documents/news/record-levels-young-people-accepted-university [2] Paragon Bank ‘Studying student buy-to-let’ market report 2020