Back to Blog

What's the latest on student letting?

Posted 18/04/2022 by Reeds Rains
Categories: Landlords, Lettings
Person reading from a sheet of paper

The student letting market is thriving. Even though student accommodation occupancy levels were unavoidably hit by the pandemic, Unite Students, the largest operator of purpose built student accommodation (PBSA) in the UK, still reported 88% occupancy for 2020-21 and 94% occupancy for 2021-22, with rental growth of 2.3%.

In 2020, around 60% of investment into single PBSA assets came from overseas investors, demonstrating that international confidence in UK higher education remains high. And university applications for the 2022/23 academic year are up 7% on pre-pandemic levels, meaning demand for student accommodation isn’t going anywhere!

Many students are attracted by the modern, purpose-built en-suite rooms and bedsits offered by PBSA, which are generally situated in luxury city centre buildings and often come with on-site amenities, such as a coffee shop, gym and laundry facilities. For landlords, the companies that operate these developments sometimes offer an attractive hands-off investment opportunity, with a dedicated management company for the building.

However, while PBSA is undoubtedly a growing market, the rental returns for landlords are around the same as for single-let properties in the general rental market. Net yields for PBSA have fallen over the past 10 years, from around 6%-7% to between 3.5% and 5%.

In contrast, the shared student housing market Houses in Multiple Occupation (HMOs) remains by far the most popular option for students, and yields can be at least double those of single lets. There’s no doubt that the increased amount of health and safety legislation and licensing requirements over recent years has had a financial impact on HMO landlords - both in terms of direct costs of compliance and the time that has to be spent on additional administration.

Nevertheless, HMO student lets can still offer market-leading rental profits.

What do students want from their accommodation?

Today’s young students have never known life without the internet and many of them are highly engaged in combatting climate change. So, one of their top priorities is having reliable, high-speed WiFi, which has never been more in demand after the growth of online learning and Zoom meetings through the pandemic – not to mention the popularity of entertainment streaming services, such as Netflix and Amazon Prime Video.

Top tip – if letting to students, consider having an emergency wi-fi set up that can be sent to the students in case the existing one isn’t working. It can take away a lot of stress and hassle, especially if the students have a major deadline to meet!

And then they are likely to be more attracted to an eco-friendly, energy efficient home, so look at installing things like renewable heating sources, a smart meter, low-energy lighting, water-saving toilets and shower heads – and make sure there’s somewhere to store recycling. If the property has a garden, have a composting unit and somewhere tenants can grow their own vegetables and herbs if they wish.

In terms of fittings and furnishings, students will expect a good quality, modern interior that’s easy to keep clean. So choose sleek, unfussy units and fittings, and tile the kitchen floor and the bathroom floor and walls. If you’re able to provide en-suites, students will appreciate that and will generally be prepared to pay more for those rooms.

Make sure the beds have decent mattresses and, if there’s space, put a desk in the bedrooms so the tenants can study in peace. And don’t scrimp on appliances – today’s student tenants will expect a dishwasher, large fridge/freezer, microwave, washing machine and a smart TV for the communal living room.

Location-wise, students want to be within easy striking distance of their campus, with amenities like coffee shops and a gym nearby. And although students of the past tended to want a thriving night-life on their doorstep, today’s more health-conscious young people value being close to parks and leisure facilities.

According to Unite Students, nearly half of students already work part-time, so it’s important that there are casual work opportunities nearby and/or a reliable bus service into the town or city centre. And in a recent survey of 1,000 students and 1,000 parents carried out by Unite, two-thirds of students and nearly three-quarters of parents said they are extremely worried about the increased cost of living, so the number of students who have a part-time job may well increase this year.

Bear in mind that students will have a preference for certain areas and even specific roads, so speak to the university accommodation office and ourselves to find out what those locations are. If you buy in the wrong place, you could end up with very low demand and that could ruin your investment plans, so make sure you do plenty of research, which we will be happy to help with.

Here’s a round-up of the key reasons student house shares can make a great investment:

Demand is consistently strong

Demand for student lets tends to stay consistently high because the number of students enrolling in universities and colleges each year is very stable. The student rental market isn’t typically subject to the ups and downs of the general housing market.

You’ve got a predictable rental cycle

In addition to the consistent level of demand, the academic year provides a predictable and regular rental cycle. Students tend to start looking for their accommodation early, and most universities have their housing fairs in January for the following academic year. So if your current tenants will be leaving at the end of the summer, you should be able to get their replacements lined up well ahead of time.

And, even though the academic year only lasts 8-9 months, it’s fairly standard for students to sign a 12-month rental agreement. Even though some students will choose to go home over the summer, many want to stay on, either to continue with their part-time job, carry on studying or just be with their friends.

Rental income tends to be secure

While some think it might be risky letting to students because they’re not in employment and may be irresponsible with money, you’re actually less likely to have arrears issues with students, for two key reasons:

  1. You can have the students all sign a joint tenancy agreement, which means they agree as a group to pay the total monthly rent and be jointly liable for any other costs, such as damage. So, even if one of them can’t or won’t pay, or someone moves out, the rest are obliged to cover their share.
     
  2. Landlords will often insist on students securing a guarantor, which is usually a parent. That means, if your tenant doesn’t pay their rent, you can pursue the guarantor.

The added bonus of having a guarantor for each tenant is that they tend to take good care of the property if they know their parents could have to pay for any damage!

You could benefit from high rental yields

Even though your running costs are higher for an HMO, charging rent on a per-room basis will give you much higher overall rental income than if you let the property to a single household.

With all these benefits, you might be wondering why every landlord doesn’t invest in student homes! Well, the reality is that HMOs don’t always increase in capital value as well as other types of rental, primarily because of the locations where demand for this kind of shared accommodation is highest. And they require a lot more investment of time and money – there’s a huge amount to know and do if you’re going to operate a professional HMO and reap the rewards without ending up being fined thousands or tens of thousands for accidently breaking the law.

As a result, it’s worth working with a qualified agent, like ourselves that are fully acquainted with what local student tenants are looking for and the laws around HMOs in a given area.

If you’d like to discuss the demand for student housing in your area or have any other questions about letting to students, just contact your local Reeds Rains branch and one of the team will be very happy to help.

Thinking of letting to students? Book a lettings valuation here

Signup for Updates

Get the latest news from Reeds Rains direct to your inbox

Signup for Updates

Get the latest news from Reeds Rains direct to your inbox