The normally accepted way for investing in student accommodation has been through the traditional buy to let route where the investor purchases via a mortgage, a flat or HMO in the vicinity of a popular university. This means that the investor carries all of the risks associated with maintenance, loan repayment, blank rental periods and bad tenants.
Often the investor would be the students parents hoping that purchasing a property for their student offspring to use during their university term would work out cheaper than renting.
This approach has often proved successful but with the tax changes that have been introduced in recent years, yields have been reducing and as the same management concerns apply, parents who are not normally investors in property will inevitably run a higher risk than experienced landlords.
Over the past few years there has been a trend away from this approach with investors turning their attention to Purpose Build Student Accommodation (PBSA) opportunities where the investor only purchases a room or rooms in managed establishments.
Three factors that apply to traditional BTL investment but wont apply to PBSA investments are shown below.
- Stamp Duty – Purchasing a buy-to-let or second home now carries a 3 per cent stamp duty surcharge on top of standard rates of tax.
- Mortgage Tax Relief – Where previously interest paid on the mortgage could be offset against income, this is no longer the norm and this will reduce the net income you will receive.
- Lending Criteria – Lenders now apply stricter rules when considering mortgage applications for a BTL property. Lending is still based on rental value but lenders now apply their own set interest rates in their decision calculations are very much higher than the actual rate they will charge on any mortgage that they offer. This means that the amount of loan that is granted will be much less that would previously have been the case.
Purpose Built Student Accommodation ( PBSA)
Purpose built student accommodation is generally referred to as student accommodation that has been specifically built for university students by private developers. These properties will generally usually take one of two forms, either as self contained studio or “cluster” flats with private kitchens but shared living space or, be modern halls of residence containing en-suite bedrooms with shared kitchen, dining and living facilities.
The Student Market Today
The student accommodation sector is growing at a staggering rate and presents some very lucrative investment opportunities. With the UK being highly regarded as a leader in the provision of higher education and with some of the best universities in the world, the UK is now experiencing a boom in demand for purpose-built student accommodation.
Estimates for the value of this market in the UK range around the £50 billion mark and with domestic and international student numbers increasing, this market value should increase in future years.
One great benefit for students is that through new PBSA developments, they are no longer forced to pay extortionate amounts to live in run-down shared houses, with only one bathroom between them, or in tiny rooms in outdated university halls of residence.
Now they can often choose from a range of accommodation options that are custom made to satisfy their needs and rents they can afford.
Investment Hotspots for Student Accommodation
Although opportunity will be widespread across the UK is noted that Cities such as Glasgow, Edinburgh, Leeds, Birmingham, and Liverpool have all seen property values rise in recent times as capital moves north from London and the south east.
- Glasgow – Glasgow’s market for luxury PBSA is positively booming with the city offering a diverse range of student developments with around one thousand new bed spaces being recently built there and demand continuing to increase.
- Edinburgh – A recent study by a major property firm found that the Scottish capital was the third most popular destination in the UK for investment in purpose-built student accommodation (PBSA) with only London and Birmingham enjoying higher levels of investment.
- Leeds – As one of the cheaper of the larger cities for student costs Leeds receives one of the highest number of applications for university education in the UK which makes it an attractive city for investment in student accommodation.
- Birmingham – With Birmingham being home to three large universities and having a large student population around the 65,000 mark it represents a growing market.
- Liverpool – in recent years we have seen the number of students in Liverpool steadily rise to over 60,000 and this rise is expected to continue. Universities in Liverpool generally only provide beds for a relatively small number of their students, so there is always a market for quality accommodation.