Investing in property

Investing in student and graduate property

An expert guide

Whether you’re investing in student accommodation or helping a graduate family member onto the property ladder, our expert tips are here to help.

Considering investing in a buy-to-let student property or helping a graduate onto the ladder? Or maybe you’re looking to buy a place for your child or grandchild to live in while they’re at university?

If you do make an investment of this kind, you’ll benefit from any increases in the price of the property – plus rental returns if you let it out. These returns can be significant, with recent research showing that the best performing postcodes in university towns are delivering buy-to-let yields of over 10%1.

But there are a number of points to think about before you invest. We spoke to UK property experts about what to consider. 

Location, location, location

If you’re investing in a buy-to-let property and aren’t restricted by a particular university, then location will be a key consideration. 

‘Universities and good colleges inflate demand for rental properties that are within easy reach of them,’ says Mark Goodeve-Docker, new homes and investments director at estate agents Foxtons. ‘Another important aspect is the property’s proximity to key transport links. Anything that would give a tenant mobility.’

Some university towns and cities saw healthy annual rental increases last year, according to analysis from Spareroom. Oxford, for example, saw average monthly room rentals increase by 10% in Q2 2016. In Guildford, they grew by 9% in the same period, while those in Edinburgh, Norwich and Manchester increased by 7%2.

Yet they’re not increasing everywhere. There was a 5% fall in London WC2, Birmingham fell by 2%, while Durham and Canterbury both saw monthly room rentals dip by 1%2.

It’s worth delving more deeply into property price movements in the areas where you’re planning to buy. Average house prices in Cambridge, for example, rose by 0.35% in the 12 months to June 2017, compared with those in Bath which fell by 0.62%, data from Zoopla shows3.

One further thing to consider is whether there are any plans for large-scale student accommodation.

‘It’s important for buy-to-let investors to be aware of this, as new, purpose-built accommodation may take business away from your property.’ says Kate Faulkner, property analyst at UK property advice site PropertyChecklists.co.uk.

Key property considerations

If you are planning to buy student accommodation, one of the most important things to think about is the type of property you want to buy.

‘It might be more enjoyable for most students to have 3 or more bedrooms – a 2-bedroom home will lead to a different student experience than a 4 or 5-bedroom home.’ says Dan Channer, managing director at property letting and management company Finders Keepers

However, it can be more manageable to rent to smaller numbers, says David Lawrenson, founder of landlord consultancy firm Lettingfocus.com.

‘A typical student house will be a 3 or 4-bedroom house with a number of students in it, and that can work quite well. But it might be better to buy a smaller property, which would make it easier to manage.’ he says. ‘A bigger property can be a challenge for any inexperienced landlord, let alone a parent.’

Ownership structure is something else to consider. 

It’s worth taking tax advice about whether owning the property in your child’s name, your name or holding it in a company is the best option.

If you buy the property in your name for a child or family member to live in while they’re at university, it may be classed as a second home by your mortgage lender. If you’re not buying the property outright, this means you’ll need to get a residential mortgage rather than an unregulated buy-to-let mortgage, and you wouldn’t be able to charge rent to anyone living there. Another option to consider is a regulated buy-to-let mortgage which means you could charge rent for others living in the home.

If you’re buying the property as a buy-to-let investment and have no family members living there, you can have an unregulated buy-to-let mortgage.

Dan also advises finding out whether you’ll need a House in Multiple Occupation (HMO) licence. An HMO is a property rented out by at least 3 people who aren’t from one ‘household’ but share facilities such as the bathroom and kitchen.

‘In some towns or areas these are restricted by councils in order to decrease the ‘studentification’ of some residential areas’ says Dan. ‘You don’t want to buy a property and then find out you can’t get an HMO licence.’

Cost implications

As well as the usual costs associated with buying a property, there are some additional ones that may be a factor when buying student accommodation. These include the HMO licence fees, if required, along with any remedial work needed to get the licence. There’s also the cost of finding tenants.

It’s possible you’ll also want to furnish the property, so factor in general wear and tear. If you’re planning to use an agent to manage the property, then you’ll need to account for the additional fees associated with this.

Bear in mind too that stamp duty for second homes increased on 1 April 2016.  Most now attract an additional 3% surcharge, which still applies if you’re buying as a buy-to-let investment.

Helping graduates become first-time buyers

Perhaps your child’s student days are over and they’re looking to get on to the property ladder? Or maybe you have another relative who’s graduated and wants to become a first-time buyer? If so, there are ways in which you can help.

The Barclays Family Springboard Mortgage allows the borrower to buy a home worth up to £500,000 without a deposit, as long as a family member provides 10% of the property value as security.

If you act as a helper, then your money – which is deposited in a Helpful Start Account – will be returned after 3 years with interest, as long as the borrower maintains their repayments. You aren’t acting as a guarantor, and the borrower retains full rights over the property. It can also help with your own property costs if you have an Offset Mortgage, using the savings you’ve placed in the Helpful Start Account to reduce the interest you pay. 

Alternatively, with our Family Affordability Plan, you can apply for a joint mortgage with your child or younger relative, without becoming a joint owner of the property. You’ll both be responsible for all mortgage repayments and charges, so you will have to demonstrate you’ve taken independent legal and tax advice to make sure you understand the risks involved.

This could enable them to borrow more and access a wider range of deals, while retaining full ownership of the property. 

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