The Budget saw the chancellor raise Stamp Duty from 5% to 7% on all properties over £2m.
While this might be disappointing for wealthy buyers of investment properties, it has little impact on the pockets of investors in the wider market. One sector that won’t be affected is the student property market, where house prices typically range from £100,000 to £250,000.
These prices keep Stamp Duty below the 3% mark and ensure that yields are enhanced.
Thinking of student properties, the house of Rik Mayall in The Young Ones often comes to mind – torn curtains, peeling wallpaper and mountains of dirty dishes. But today’s reality is different.
Increased competition has driven up the quality of student accommodation. My first buy-to-let purchase was a three-bed semi in Guildford rented to students at Surrey University.
They dutifully paid my rent before other important expenses such as cheap booze and oven chips. Each cheque covered the full school term – 12 weeks – giving me good cash flow and at £1,000 per month, a better yield than a family let of £650.
As a proactive landlord I tried to secure a new tenancy at Easter when the student accommodation lists are issued.
This allowed me to set up the next tenancy before the current one expired. More often than not students are prepared to pay the full rent over the summer even though they do not live in it just to ensure they secure the property.
During this period I usually do necessary refurbishments. I have also benefited from capital gains.
In 1997 I bought the property for £72,000, today it is worth £250,000. Interestingly the rent has only increased by £400 – from £1,000 to £1,400 – indicating that although property prices have gone up 347%, rents have only increased 40%. It’s possible then that rents have the potential for further increases.
There are several key considerations for owners of student properties. First, landlords should ensure there are no locks on doors. Secondly, it is better if the students are friends and that the property is let on one assured shorthold tenancy agreement.
This gives landlords a wider pool of lenders to choose from, which is important given the limited availability of funding for houses in multiple occupancy.
Given the strengths of student rental properties it is surprising there are not more lenders in this space. It is a sound investment that offers lenders good security.
Wear and tear is higher than with other investment properties but a good deposit can mitigate this.
There is also the risk that if students are not found by September, the property may have to be rented as a family let, but this can be covered by basing the rental calculation on a family let.
For properties with four or fewer students The Mortgage Works leads the way with headline rates starting at 2.94%. Godiva Mortgages has also launched a range suitable for student lets.
For larger houses with five or more students lenders like Kent Reliance Building Society and Paragon Mortgages have HMO ranges but expect rates and fees to be higher.
Buy-to-let is becoming more important for brokers and to stay ahead they need an understanding of this specialist sector. By demonstrating an understanding of the student market brokers will maintain their credibility and secure more client business.