Buy-to-let investors target university cities
07-07-2017
Rise in student housing owned by private landlords, says report
Miles Johnson
Think hard before buying a London property
Sir Christopher Snowden, vice-chancellor at Southampton, said the ratings system appeared 'devoid of any meaningful assessment of teaching' © Alamy
by: James Pickford
Southampton, Liverpool and Leicester are among the English cities to have seen the biggest growth in student housing owned by private landlords, according to research that suggests buy-to-let investors are increasingly looking to university cities for better yields. Between 2011 and 2016 the number of homes lived in wholly by students — excluding halls of residence or big blocks of student accommodation — has risen by 11,000, according to research by estate agency network Countrywide. Southampton saw the biggest growth, with a rise of 3,428, compared with 2,560 in Liverpool, 2,163 in Tower Hamlets and 2,075 in Leicester. Other places to feature include Exeter, Brighton and Hove, Birmingham and Newcastle upon Tyne. Some cities saw a drop in student housing numbers, bringing the balance to 11,000.
The figures suggest buy-to-let investors are increasingly focusing on providing accommodation in places with swelling student populations. With student housing, landlords can typically achieve a yield that is 2 or 3 per cent higher than when renting a similar-sized home to a family. Johnny Morris, head of research at Countrywide, said: “Yields in buy-to-let have declined as house prices have grown and one of the few ways of increasing your yield is increasing your income. Looking at the student market can do that.”Yields have also become more important to landlords for regulatory and tax reasons: the staggered removal of income tax relief on mortgage interest and higher transaction costs from a stamp duty surcharge on buy to let are threatening landlords’ profits. It is not a market for everyone, Mr Morris warned.
Higher turnover of tenants brings steeper management costs, while the costs of maintaining houses in multiple occupation (HMOs) are typically higher than maintaining those housing a single family. Some councils are also demanding landlords get planning permission for HMOs, often under pressure from local residents who want to limit their growth. The proposed ban on letting agent fees charged to tenants and a cap on security deposits of one month’s rent may also raise the costs for landlords renting to students — even though landlords often require a guarantor to back up the tenant. “It’s definitely a bit of a risk on the horizon,” said Mr Morris. The research identified student-occupied homes by identifying HMOs which paid no council tax. Properties fully occupied by university or college students are exempt from paying the levy for local services. Average monthly room rents varied from £280 in Sunderland and £414 in Southampton to £559 in Brighton and £752 in Tower Hamlets. There was anecdotal evidence that buyers in high-priced areas were purchasing outside their usual stamping grounds in search of higher yields. “As the London market has slowed there’s been a shift of landlords considering buying further away and considering the best yields rather than just capital growth,” Mr Morris said.
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