Student Property Finance

Student accommodation is in demand. There are more than 2.4 million students in UK universities and colleges. The UK is the second most popular study destination for students around the world - international enrolments increased by 3.6% in the year 2017-18, to more than 458,000. Overseas students represent a growing sector of an already huge market.

But that market has moved on. A generation ago, students might have been content with low-quality rooms. Today, they expect clean and modern housing with facilities such as wifi as standard. Thanks to the larger cost of loans, many students want to make the most of their cash and are looking for value alongside high-quality places to live.

Luxury accommodation is springing up near universities up and down the country as students expect more for their money than ever before. 

However, despite the need for quality accommodation, there can still be plenty of opportunity for profit if you have a suitable property in a university town - and it can often be more profitable than traditional lets:

• Demand in student areas is strong and consistent
• Students will usually look to rent for a minimum of 12 months, meaning less stress for you finding new tenants
• Student lets tend to offer particularly high yields
• It offers a constant supply of new tenants

Getting credit references for students is difficult. However, students can set-up a direct debit or standing order and payment will go into your account once a month.

If you have a local college nearby, you can potentially team up with their student accommodation team and they will find and referenced tenants for you.

How much profit can you make? 

Where you are in the country will influence your potential profits - but it is safe to say that there could be greater profitability from letting.

So while a typical four-bed house in the south-west will rent out to a single family for around £800/month, if you were to rent the same space to four students, you could expect to generate a gross income of £2,400/month.

Taking out your expenses such as utilities, broadband, cleaning and maintenance costs, you could easily be looking at generating a net profit of £1800/month for exactly the same property.

If you let out a single studio flat, the difference in achievable rent may be smaller.

However, there are some extra costs to consider.

Properties tend to suffer more wear and tear when let to students and, as a result, you are likely to spend more on maintenance at the end of a tenancy than you would with a traditional let. Students will expect properties to be fully furnished, but you may be able to use secondhand furnishings provided that they are clean and sound. Your income will fluctuate if one of your tenants decides to move out, which often happens if they decide to move on, or drop out of college. 

The equipment you will need to provide includes:

• Washing machine
• Fridge freezer
• Cooker
• Carpets/curtains/lampshades
• Beds
• Wardrobes
• Desk and chair for each room
• Sofa
• Vacuum cleaner

Each letting room will require a secure lock. 

This list is the bare minimum you need to provide. Some landlords will provide more, with luxuries such as a TV in each bedroom, bookshelves and wifi. However, this is up to you - and may mean you can charge a higher rent.

Finding this level of equipment can be easy enough to arrange. The complications come if your property is an HMO (House in Multiple Occupation) is categorised as a house that occupies three or more unrelated tenants who share a kitchen, bathroom and communal living area. If your property is over three storeys and there are five or more occupants, you must apply for an HMO license.

It costs around £500 to £600, depending on where in the country your property is, and usually lasts for five years. Some councils insist that you have an HMO license regardless of the number of students you have, so always make sure that you check with your local authority. When applying to accommodate students, your local authority will issue you with a set of guidelines that you must carry out.

These include that your property has a gas safety and electrical check, that there is a means of fire escape, that you have installed mains smoke, fire and carbon monoxide detectors on every floor and that you make sure that all furnishings are safe and fire safety compliant.

It is a legal requirement to provide a fire blanket and/or a fire extinguisher if your property houses more than five students.

Unlike a standard let, with shared occupancy and one tenancy agreement covering all the occupants, an HMO usually requires individual short-term tenancy agreements with each of the tenants.

With an HMO, as with all your normal legal responsibilities, you must ensure:

• Smoke detectors are installed
• Electrics are checked every five years
• The property is not overcrowded
• Adequate cooking and washing facilities
• Communal areas and shared facilities are clean and in good repair
• Your boiler's gas safety certificate is up-to-date

Letting a property can be a rewarding investment or the basis for a business.

But getting the right type of property and the right kind of tenant can make a big difference to the levels of returns you enjoy. Many experienced investors have discovered that they can increase the overall income earned from a property by renting rooms on an individual basis.

You could expect the overall yield on a standard buy-to-let with a single household tenant to average 5.8% in the first three months of last year.

HMOs - Houses in Multiple Occupation -  with student tenants yielded an average of 10.2%.

It looks as though you might enjoy a better return on your investment by letting an HMO. But you will need a special kind of finance. Fortunately, at Rangewell, we can help you find the type of funding you need.

Funding an HMO

Not all lenders are keen on providing mortgages for HMOs because of what they see as increased risk.

HMO properties are traditionally seen as unlikely to attract family renters and as often being of poor quality, offering little security for the lender. To make matters worse, the modifications required to turn a property into an HMO, including fire doors and escape routes, individual heating and meters in each room will further detract from the resale potential.

An existing buy-to-let mortgage may have clauses preventing you from turning it into an HMO.

As a result, many investors believe that a Commercial Mortgage is needed for HMO property. At Rangewell, we know the specialist lenders who can offer competitive deals for landlords looking to purchase an HMO or convert an existing property, with an HMO mortgage. They may be more costly than a conventional buy to let mortgage but can cover up to 75% loan-to-value.

Specialist funding for HMOs

With our help, finding a lender for both licensed and non-licensed HMOs can be straightforward, although each lender has its own approach and criteria and costs may be a little higher than comparable buy to let arrangements.

Some will base their valuation on the price achieved if it were purchased as a single dwelling, restricting the amount that you can borrow. However, others will base their valuation on the achievable rental income or ‘investment value’ when making their lending decision.

Some may only consider you for an HMO mortgage if you are an experienced landlord. Most will make it a condition of the mortgage offer that you are deemed ‘fit and proper’ to run an HMO. 

Other considerations may include:

• The number of letting rooms and expected or actual rental income
• Location
• Your experience as a landlord
• Whether you’ll be managing the property yourself or using managing agents
• Types of tenants
• Loan amount
• Your credit rating 

Development funding for student property

You may be able to acquire an existing HMO and simply fit it out for student tenants - but you may require development funding that will allow you to convert a property to student accommodation. 

Development Finance can help you acquire a property and fund work on it - and when the project is finished, it will allow you to refinance the property with a more conventional financial product. It offers some features that make it particularly attractive for this kind of project:

• Staged draw-down: you only pay for funds as and when you need them
• Rolled-up interest repaid at end of term: allows you to use all your liquid finance on build and fit-out 
• Loan amount minimum: usually £200K
• Terms: usually 6-18 months
• Agreed exit: sale, or mortgage finance

Financial solutions from Rangewell

The property market is highly competitive, and it is important to have expert help to get the kind of funding that will help you reduce your outgoings.

At Rangewell, we can use our property finance expertise to support your business – and ensure that you have the financial solutions you need. We can help source business lenders who can provide specialised HMO funding - and search their offerings to find you the lowest HMO mortgage rates. By doing this, you get to keep as much of the rent received as possible, helping you make more profit. 

Lenders will vary greatly in what they offer, and even a fraction of a percentage point can make a substantial difference to what you actually pay each month. It means that getting expert support to find the right deal is essential to save money.

At Rangewell, we help investors of all kinds find the finance they need. We cover the entire UK lending market, which means we can help you find the most cost-effective property finance for all property investment needs - and to help you make the most of your particular plans.

Our knowledge can not only help you secure the funding you need for your student letting business - it can save you a great deal of money.

ANY PROPERTY USED AS SECURITY, WHICH MAY INCLUDE YOUR HOME, MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE