Private landlords are increasingly turning to student accommodation as a lucrative investment opportunity, with some locations offering rental yields exceeding 9%, according to recent data. This contrasts with the average yield of around 6% for typical buy-to-let properties, which are facing challenges from higher mortgage rates, increased upkeep costs, and a less favorable tax environment.
Paragon Bank, a buy-to-let mortgage lender, analyzed data from properties it has financed in university towns. The findings indicate that student lets in certain areas present a strong return on investment. The yield is calculated as the percentage of the property's purchase price that an investor can expect to receive back in rental income each year.
Top Locations for Student Property Investment
Stoke-on-Trent, home to Staffordshire University and Keele University, emerged as the top location for student rental yields. Landlords in this city can expect an average yield of 9.42%, based on an average annual rental income of £14,222 and a property valuation of £150,982. Plymouth followed in second place with a typical yield of 9.27%, generating an average annual rental income of £35,224 against an average property valuation of £379,881.
Several cities with Russell Group universities also feature in the top 15 high-yielding locations. Liverpool offers landlords an 8.86% yield, with an average annual rental income of £26,399 and a property value of £297,951. Cardiff student lets provide average returns of 8.27%, and Edinburgh follows at 8.23%. York and Leeds also reported yields above 8%.
Considerations for Student Landlords
Despite the attractive yields, property experts caution that investing in student housing requires careful consideration. Louisa Sedgwick, managing director of Mortgages at Paragon Bank, emphasized that student property is a specialist market. Landlords must understand local demand, the specific needs and quality expectations of student tenants, and the responsibilities involved in managing shared living spaces.
Chris Sykes, a mortgage advisor at MSP Financial Solutions, highlighted the potential for increased wear and tear in student properties compared to standard multi-occupancy homes. He noted that issues such as parties, noise complaints, and smoke residue can lead to higher maintenance and insurance costs. The implications of the Renters Rights Act also present a concern for landlords of non-purpose-built student accommodation. Under the new legislation, properties are now let on periodic tenancies, meaning landlords cannot enforce fixed lease terms. This could allow students to leave tenancies before the end of the academic year, leaving properties vacant during summer months.
While purpose-built student accommodation is exempt from these changes, landlords of conventional houses and flats face greater uncertainty. Michael Zucker, a chartered surveyor, added that student expectations for accommodation have evolved significantly. Modern student housing needs to offer high-speed Wi-Fi, adequate workspace in rooms, and well-equipped communal living and kitchen areas. En-suite bathrooms and good proximity to educational institutions can further enhance rental value. Including communal utility bills in the rent can also help mitigate tenant disputes.
Mortgage lending for student properties can also be more complex. Some lenders are hesitant due to the perceived higher risk and potential for damage. However, Sykes noted that obtaining a mortgage for a student let is similar to that for a standard House in Multiple Occupation (HMO), provided the right lender is chosen and the property meets licensing requirements.
