To say that the higher education system has fundamentally changed in the past 20 or so years would be something of an understatement.
Back when Moses wore short pants and university either meant dreaming spires or red bricks, and polytechnics still existed, the issue of housing our nation’s student body was not a major concern. Student numbers were nowhere near the levels of today and, while halls of residence have continued to house large numbers over the years, there is a continuous and growing need for the private rental sector to meet the increasing demand.
Consider the number of students currently enrolled in our nation’s higher education establishments and you will see the challenge that needs to be met and the opportunity that exists for student property landlords. Figures from the Higher Education Statistics Agency reveal that more than 2.5m people are currently ‘attending’ university. I say ‘attending’ as more than 200,000 of those are with the Open University and therefore we cannot truly count them as students seeking housing, albeit they all need places to live.
This leaves 2.3m individuals. Now not all of these will be moving to higher education, some will stay at home and others will end up in accommodation provided by their college or university. However the increasing demand does mean that more establishments are seeing an accommodation shortfall which they cannot meet and are relying on private landlords in order to house their students. Not forgetting the fact that, beyond the first year, most students will not have a place in halls or university flats and will be out in the market looking at their housing options.
Coming right up to date, one can see the huge potential that exists for those looking for a student investment opportunity. Application body Ucas has revealed that a record 401,540 students accepted places on undergraduate courses for this year and it is expected, that by the time term starts, more than 150,000 will have gone through the clearing process and be about to embark on their course. This is just the undergraduate numbers, not the postgraduates which will add many more thousands seeking something from the student housing ‘pot’.
It is perhaps no wonder that landlords who have targeted the student market are seeing strong returns and the potential to add to their portfolios if they can get the location/property conundrum solved effectively. Post-credit crunch, of course, the problem has been marrying up the opportunity that clearly exists in this market with the availability of finance in order to add to portfolios and meet the demand. It has been quite clear that lenders who had their fingers burnt by loose lending criteria in the years post-2008/2009 have not been willing to run up the risk curve so quickly in order to support such landlord activity.
Landlords have had to temper their ambitions when it comes to building a portfolio given that, quite rightly, lenders have wanted only the lowest-risk/squeaky clean borrowers. The notion of responsible lending often went out of the window pre-crunch but in the years since landlords have needed considerable levels of deposit/equity in order to secure a mortgage. While criteria has loosened a little, particularly in the past year or so, it is still the case that securing a buy-to-let mortgage often depends on the landlord’s ability to come up with a 20 per cent to 25 per cent deposit and ensure that the rental cover available is on the money.
The other major issue for prospective student landlords in recent times covers both attitudes to lending and local authority permissions, and this is the fact that many private student properties will be classed as a house of multiple occupation. These houses need permission and licensing by the local authority which means they need to meet stringent criteria around their layout, including the use of fire doors, smoke detectors etc. Again, post-crunch, some buy-to-let lenders pulled out of lending on houses of multiple occupation, while others tightened criteria making it more difficult to secure finance. In the past year there have been more buy-to-let mortgage options across the board for landlords and investors but we are a long way from the finance availability that was on offer before the financial buffers were hit.
Yet the fact is that not only is the buy-to-let market on the up but student landlords have a far greater degree of finance options than at any time in the past few years. Figures for the buy-to-let market from the Council of Mortgage Lenders for quarter two this year showed that 40,000 mortgages worth £5.1bn were advanced, the highest number since the third quarter of 2008 and a significant 19 per cent increase by volume and 21 per cent by value on the preceding quarter. All expectations are that the buy-to-let market will continue to provide greater finance opportunities for landlords in the course of the next few years, helped by greater lender competition and the downward pressure this will have on pricing.
Given that we are now in autumn with term time beginning, advisers may have clients who believe they are now too late in order to enter the market for 2013/2014. This is not the case and, depending on location, property and the higher education establishments, there is no ‘wrong’ time in order to bring a student property to market. We hear all the time of demand outstripping supply with some universities forced to house some of their new intake in bed-and-breakfast accommodation so those who might consider themselves too late should not be put off. Clearly they will have missed out on those students who choose their next year’s property much earlier in the year (and the summer rents that comes for landlords with this option) but there are still likely to be those looking in the course of the next few months.
You only have to consider the numbers who gain places through clearing to understand the potential market. These students are likely to be going to establishments which they had not previously considered before their A-level results so there may not be any accommodation in place for their needs. While universities do all they can to house those in their first year there is still a growing number who will need private accommodation from the outset.
While advisers are clearly available to help with financing the purchase of these properties, they can also help with the marketability as well. Those who might think ‘student housing’ is the lowest common denominator and that we are still in the age of The Young Ones and the student housing on offer back in the 1970s/80s, will need to be shown the error of their ways immediately.
The student property market is competitive and if clients are choosing properties in popular areas then they will need to have on offer accommodation which comes not just furnished appropriately but with all mod cons. We are not talking about hot tubs and cinema rooms (although you would be surprised) but students these days expect a level of accommodation which is not far off their pre-student life. Those who meet these expectations will be able to secure a far better rental return than those who might be thinking they can get away with the lowest quality decoration and furnishings.
Bob Young is managing director of CHL Mortgages
Key Points
The high number of students enrolled in higher education establishments means a lot of accommodation is needed.
Landlords who have targeted the student market are seeing strong returns and the potential to add to their portfolios if they can get the location/property conundrum solved effectively.
Student landlords have a far greater degree of finance options than at any time in the past few years.
