This guide is for anyone who is considering buying a student Buy-to-Let but might be feeling apprehensive about investing during the current Covid climate.
Universities across the country remain open, with many students working remotely from their student houses. Now, perhaps more than ever, finding the right student accommodation is a top priority for those seeking a safe and suitable place to live while they study.
Is now a good time to buy a BTL student house?
The UK has officially entered its first recession in 11 years and though this may result in hesitation from some would-be landlords, property prices may decrease, creating an opportunity to snap up cheaper investments.
Of course, there is no certainty with any investment, though the value of the property may rise over time which could help you build capital to either enjoy as a source of income or reinvest into further projects.
Students usually start looking for their accommodation for the following academic year from as early as January, so if you’re thinking about buying a property, ideally, it would need to be on the rental market by then.
Where are the best places to invest in student houses?
The UK has around 130 universities, so with that in mind, there are plenty of student buy to let hotspots to consider. But what makes a student town or city more likely to provide potential profit for Buy-to-Let investors and what factors should you consider?
University league tables
The top universities in the country certainly have the demand and therefore finding tenants can be easier and often quicker. However, in light of an increased demand, property prices can be higher and therefore the amount of profit you make overall could be lower.
Similar properties in the area
Look at property portals like Rightmove, Zoopla and Prime Location to compare properties for sale, based on their price, proximity to the local university, transport links and interior.
Look at the previous selling prices too (which are usually at the bottom of the listing) as this can help you decide whether there is a good investment opportunity.
It can also be a good idea to compare listings for student accommodation to see how a typical student property is presented and marketed.
According to research from Simple Landlord Insurance, yields on student properties outstrip non-student properties in the same area by 33%. What that means for you as a landlord is a higher profit, so the higher the rental yield, the better.
To calculate the rental yield of a property, divide your annual rental income by the property value and then multiply it by 100 to get your yield percentage.
For example, if you were to invest in a property in Southampton, perhaps in Bassett, close to The University of Southampton, a 4 bedroom house could cost you around £300,000 and with each tenant paying on average £500 a month, annual returns in this case are £24,000- an 8% annum return.
Is renting a student house a good idea?
There are certainly pros and cons to consider when weighing up whether you should invest in BTL accommodation for students. The first being that maintaining and managing the property could be a lot of work, especially in the summer period once old tenants have left and new ones await their arrival.
A lot of student BTL landlords hire professional cleaners for the end of tenancy, which can save a lot of elbow grease and hassle, while others include a clause in their contract which requires the old tenant to thoroughly clean the property.
A positive of providing accommodation for students is that their income can be predictable due to the nature of their student loans, as opposed to a tenant who relies on a salary or hourly wage to pay their rent.
What should I consider when letting out student accommodation?
Some BTL investors who rent out to students purchase larger houses to maximise their profit and provide separated living spaces for their tenants.
Larger houses can be more expensive to heat and some money conscious students may see this as a negative, opting for modern, purpose built accommodation or flats. That being said, a larger house can offer tenants more of a community as well as a homely feel.
Most students will expect a furnished property that is ready to live in, afterall, most eighteen year olds certainly won’t have their own collection of white goods or a three piece suite.
Although this can make the initial investment more costly, a modern, fully furnished student home can increase the appeal of the property, especially to parents who may be accompanying their child on house viewings.
Most student BTLs include:
Bed frame and mattress (you may want to provide mattress protectors too)
A desk and chair in the bedrooms
Wardrobe and drawers
Kitchen appliances including an oven, washing machine, fridge freezer, kettle and toaster
A sofa or seating area
The accommodation you provide to your young tenants needs to be safe and must meet UK standards for housing which may require:
Smoke alarms on each storey
A carbon monoxide alarm in any room with a solid fuel burning appliance
A Housing Health & Safety Rating
An Energy Performance Certificate
An annual gas check certificate
Fire extinguishers if the property is a large house in multiple occupation (HMO)
How long is a student BTL tenancy?
Most UK student accommodation agreements span for 12 months, although some landlords offer more flexible contracts which fit in with the student year more aptly.
Most students move into their accommodation in September at the start of the academic year and move out for summer in June/July, at the end of the university year.
For most students, that means paying rent on a room that you won’t be staying in for a couple of months in the year, which can be frustrating. Advertising a student property with a tenancy length that suits students could give you a unique selling point, so it could be worth considering.
That being said, this option would mean that your property would be empty for potentially two months a year in the summer, so may not be the best route for maximising your profit.
How do student accommodation deposits work?
Student deposits are legally required to be held in a Government authorised scheme known as a TDP or tenancy deposit protection scheme. This can work out favourably for both parties as the money is safeguarded and in the event of any dispute there is an independent adjudication to solve the issue.
As a student BTL landlord, you’ll have to collect the deposits from your tenants and pay it into one of the three TDP schemes within 30 days. If you don’t, you could face financial penalties.
What does a deposit cover for a student BTL property?
At the end-of-tenancy rent arrears, wilful damage and any essential cleaning. It usually covers:
Damage to the property or its fitting in excess of wear and tear
The cost of cleaning necessary to return the property to a lettable condition
Damage to décor
The cost of removing large amounts of waste from the property
The cost of replacing locks or keys if keys are not promptly returned
Any outstanding rent
The deposit cannot be used to cover reasonable wear and tear which you have paid for in your rent.
What type of mortgage do I need to buy a student house?
A Buy-to-Let mortgage would be the most likely option for a landlord looking to finance the purchase of a student house or flat. Keep in mind that buy to let mortgages are considered to be higher risk for lenders as opposed to residential mortgages that rely on the borrower’s income rather than their ability to generate rental income from tenants.
In order to determine whether you can afford to borrow the amount requested, most BTL lenders will add increased stress testing and can also request that the expected rental income will be 25–30% higher than your mortgage payment.
This alleviates some of the risk to the lender and to you as the borrower, as your rental income provides a sufficient enough income to repay your mortgage, as well as any maintenance and repairs that may crop up. Additional income can also be used to pay for marketing the property or cleaning at the end of the tenancy.
How much deposit do I need for a student BTL mortgage?
The amount of deposit you need will vary depending on your own circumstances, so for an accurate reflection of what you can expect to put down as a deposit, it can be helpful to speak to a mortgage broker who can assess your situation and compare the deposit requirements from a range of lenders.
It’s a broker’s job to find you the most affordable solution, so they’ll look at lots of factors when trying to find you the best deal, although usually, the bigger deposit you have, or the greater level of equity, the lower the interest rate you will likely have to pay.
Are all student BTL mortgages interest-only?
No, although many BTL mortgages are interest-only which can be useful for investors who prefer to pay off the interest over time and repay the capital of the loan at the end of the mortgage term.
This can be advantageous for investors who buy low and want to make a profit, as well as those who wish to use their rental income for further projects.
That being said, an interest only mortgage has its risks, the most prominent being that borrowers need the full balance of the loan cleared at the end of the term which is why an exit strategy is an absolute must.
Some BTL landlords put away money in a savings account to slowly build up enough money to repay the capital whereas others rely on the proceeds of the property, once sold, to clear the debt.
BTL mortgages are also available on a repayment basis which can be more manageable for some borrowers who prefer to chip away at their balance.
I’m over 70, can I get a BTL mortgage for a student house?
Most lenders have upper age limits, typically between 70 or 75 which means that as a borrower, this is the oldest you can be when the BTL mortgage ends.
For example, if you’re 45 when you take out a 25-year mortgage it will finish when you’re 70.
If you’re considering applying for a BTL mortgage for a HMO or purpose built student block, it may be possible to get approved with the help of a specialist who will know the lenders that are more likely to approve mortgages for older borrowers.
A broker can also help you calculate your repayments based on shorter repayment terms, which could mean paying off the mortgage sooner in order to meet your chosen lender’s age cap. Some borrowers may also be more lenient when it comes to approving a BTL mortgage for an older borrower, if a higher deposit is put down.
The right advice for student buy-to-let mortgages
With each and every lender applying its own set of rules and criteria, finding a BTL mortgage for a student property can still be a difficult task. Searching a lender can feel like an endless task, which is why many people opt for a mortgage broker who can manage the process.
Speak to an expert about your options for clarity and a clear route to BTL ownership. Here at The Mortgage Hut, our advice is free and provided to help you make the right decision based on your affordability and needs.
Call today or if you’d prefer, fill out our enquiry form to let us know what you need and the advisor who is best suited to help will get back to you with an answer.