Financing and insuring your property to provide student accommodation
Probably the most important thing to understand is if you let a property to several unrelated students, your type of let will almost certainly fall into the category of a House in Multiple Occupation (HMO). This is something you must declare, as HMOs are perceived to be a higher risk than other types of let and require specialist mortgage and insurance products and you are likely to require a licence.
House in Multiple Occupation mortgages
While you should certainly be able to find a suitable mortgage product for your needs, be aware that only around half of lenders currently offer House in Multiple Occupation mortgages and there will be a number of additional considerations for your application, notably:
- The fact that you’re letting to students. Some lenders won’t lend on student lets because of the perceived additional risk involved.
- The number of rooms in the property. The majority of House in Multiple Occupation lenders will consider anything up to five bedrooms, but anything bigger may require commercial, rather than residential finance.
- The rental valuation. While your own financial analysis might have shown letting to students can generate a healthy profit, some lenders still base their assessment on the rental income that would be generated by a ‘standard’ let, e.g. renting the property to a single family.
- The interest rate. House in Multiple Occupation mortgage rates tend to be higher than for standard Buy to Let mortgage products, chiefly because there is less competition in the House in Multiple Occupation mortgage market.
So, be prepared to provide more information to the lender and jump through some additional hoops. Because it is harder to secure House in Multiple Occupation financing, it’s advisable to use an experienced broker, who is familiar with the House in Multiple Occupation mortgage market. Contact our partners, Embrace Financial Services, for a free initial consultation to go through everything you need to know.
Smaller student properties
If you decide to invest in a single student studio apartment or a smaller flat, you should be able to take out a standard Buy to Let mortgage, although you will still need to inform the lender on your application that you intend to let students.
Purpose-built student accommodation
The ‘build to rent’ rental market is growing incredibly quickly and student properties represent a large proportion. These types of investment are generally sold and managed by specialist companies, which have their own teams of mortgage brokers to help facilitate your application. Nevertheless, we would always recommend you take independent advice from another broker, just to make sure you are getting the best and most appropriate product for your circumstances.
If you are investing in a student multi-let, you’ll find the insurance market is still fairly niche. As with all House in Multiple Occupation, the risk is considered to be higher for a property that’s let by the room, where facilities are shared and there’s a greater likelihood of students perhaps setting up a small kitchen area in their bedroom – plus, there are likely to be more visitors to the property than normal. So, given these additional factors, the terms of the insurance policy are different to those for a single-let property.
Even if you are letting a smaller student property, you will still need to inform your insurer because, again, they consider students to be higher-risk tenants. Be aware that some insurers may make a small extra charge to cover you.
As with any Buy to Let insurance policy, the core cover is for the building – the ‘bricks & mortar’. There are usually then additional items of cover that come as ‘standard’ in a student-specific policy, including:
- Public liability, in case one of the students, their visitors or a contractor injures themselves in your property
- Malicious damage and theft by tenants.
Check what else is included as standard and then consider taking out separate cover, if necessary, for:
- Accidental damage
- Your own contents – and do remember to tell students that they need to arrange their own contents insurance cover.
- Alternative accommodation, in case your tenants need to be re-homed while any necessary works are carried out on the property after insured peril
- Boiler repair or replacement if it’s a larger student let, as boilers tend to suffer much more wear and tear in House in Multiple Occupation
- Equipment breakdown for your white and other electrical goods
- Glass & locks replacement, in case of any break-ins.
- Rent guarantee insurance, in case any tenant defaults – although you should already have secured guarantors for each student in the property
At Reeds Rains, we offer a wide range of landlord insurance and manage many student lets, so we and our partners are familiar with all aspects of financing and insuring this kind of investment. Whether you have just one student property or are looking for portfolio insurance, get touch today for a free initial consultation via our website.
If you would to see where you could make savings across your mortgages and insurance. Book a FREE lettings review in one of our local branches