Buy to let mortgage on a student property

One of the key elements to successfully investing in this sector is understanding the role of buy-to-let mortgages for student properties and the unique considerations they involve. Buy-to-let mortgages are designed specifically for landlords planning to rent out their property, and when it comes to student lets, there are a number of distinct factors to consider. The dynamics of the student rental market, the financial aspects of the investment, and the specific mortgage products available are all crucial components to understand.

This guide will provide an in-depth look at buy-to-let mortgages for student properties, focusing on the opportunities and challenges that come with investing in student lets. It will provide prospective landlords with essential insights, helping to unlock the potential of this vibrant sector of the property market.

What is a buy-to-let mortgage for student properties?

A Buy to Let mortgage for student properties is a specific type of investment loan designed for landlords who intend to rent their properties to students. These types of mortgages are typically used to purchase houses or flats in areas with a high student population, such as cities with universities or colleges.

Just like a standard Buy to Let mortgage, a lender provides a loan for the purchase of a property, and the borrower repays this loan over time, typically from the rental income they receive from the tenants.

How does a buy-to-let mortgage for student accommodation work?

A buy-to-let mortgage for student accommodation works in a similar way to a standard buy-to-let mortgage, with some specific considerations due to the nature of renting to students. Here are the general steps:

1. Application: As with any mortgage, the prospective landlord applies for the loan, providing all necessary documents such as proof of income, credit history, and details of the property they wish to purchase.

2. Assessment: The lender will assess the application based on several factors. This may include the applicant’s financial stability, the property’s location, its condition, and its potential rental income. Lenders often consider rental income from student properties to be reliable due to the consistent demand for student accommodation, but they’ll also account for vacancy periods (like summer breaks, when students often vacate their properties).

3. Property Valuation: The lender will carry out a valuation to confirm that the property is worth the purchase price. They also typically assess the potential rental income of the property, which must usually be 125–145% of the monthly mortgage repayments, depending on the lender’s criteria.

4. Mortgage Offer: If the lender is satisfied with the application and valuation, they will offer a buy-to-let mortgage. This will specify the loan amount, interest rate, term of the mortgage, and other terms and conditions.

5. Repayment: Once the mortgage is in place, the landlord makes monthly repayments. These payments typically come from the rental income received from the student tenants.

6. Maintenance and Management: As the property owner, the landlord is responsible for maintaining the property, managing tenants, and complying with all regulations, including those specific to student rentals and houses in multiple occupations (HMOs), if applicable.

The main difference between a buy-to-let mortgage for student accommodation and a standard one lies in the management and tenant-related aspects. Student properties often involve multiple individual tenancy agreements, a more frequent turnover of tenants, specific safety regulations, and more intensive property management. Also, lenders may factor in the regular vacancy periods that can occur in student rentals when assessing the potential rental income.

What are the eligibility criteria for a Buy to Let mortgage for student properties?

The eligibility criteria for a buy-to-let mortgage for student properties can vary between lenders, but the following are generally required:

1. Age: Most lenders require you to be at least 18 years old to apply for a mortgage. They also usually specify a maximum age at the end of the mortgage term, often around 70–75.

2. Income: Many lenders require you to have a minimum annual income, typically around £25,000, though this can vary. This is to ensure that you can cover the mortgage payments, particularly during periods when the property might be vacant.

3. Homeownership: Some lenders require you to own your own home, either outright or with a mortgage, before you can take out a Buy to Let mortgage.

4. Deposit: As with all mortgages, a deposit is required. The exact amount can vary, but for Buy to Let mortgages, it’s typically between 20-40% of the property’s value. The larger the deposit, the more likely you are to secure a favourable mortgage deal.

5. Credit History: Lenders will check your credit history. Any history of adverse credit, such as bankruptcies or defaults, may affect your ability to secure a mortgage.

6. Rental Income: Lenders typically require that the expected rental income from the property is 125-145% of the monthly mortgage repayments. This is known as the rental coverage ratio. For student properties, the lender will take into account potential vacancy periods.

7. Property Value: Some lenders impose a minimum and maximum property value for Buy to Let mortgages.

8. Property Type: For student properties, lenders will consider factors such as its proximity to universities or colleges and the demand for student housing in the area. If the property is a house in multiple occupation (HMO), additional requirements and regulations may apply.

9. Number of Properties: Some lenders limit the number of Buy to Let properties a landlord can own.

How much deposit will I need?

The amount of deposit you will need for a Buy to Let mortgage on a student property can vary significantly between lenders, but as a rule of thumb, it is generally higher than the deposit required for a standard residential mortgage.

Most lenders typically require a deposit of at least 20-25% of the property’s value for a Buy to Let mortgage. However, it’s not uncommon for lenders to require a larger deposit, such as 30% or even 40%, especially if the property is higher risk or the borrower’s financial situation is less stable.

The deposit requirement can also be influenced by various factors like your credit history, your expected rental income from the property, the type of property you’re purchasing (for instance, whether it’s a house in multiple occupation (HMO)), and the specific terms of the mortgage product you’re applying for.

To secure better interest rates and terms, a larger deposit can be beneficial. Therefore, you should consult with a mortgage broker or advisor to understand the specific deposit requirements and how they might impact the mortgage terms for the student property you’re interested in.

How much can I borrow on a student Buy to Let property?

The amount you can borrow on a Buy to Let property for student accommodation largely depends on the expected rental income of the property, your personal financial situation, and the lender’s specific criteria.

Lenders typically determine the maximum loan amount using a calculation based on the rental income – the so-called rental coverage ratio. They generally require the rental income to be 125–145% of the monthly mortgage repayments.

For example, if your monthly mortgage repayment is £1,000, a lender requiring a rental coverage ratio of 125% would expect your property to generate a monthly rent of at least £1,250.

Furthermore, the lender may also factor in the possibility of rental void periods common with student properties, such as during the summer months when students often vacate their accommodations. However, there are other factors that lenders consider when determining how much you can borrow, including: your income, your age, your credit, and deposit. 

Student Buy to Let mortgage lenders

There were several lenders in the UK that offered Buy to Let mortgages suitable for student properties. They ranged from high-street banks to specialist lenders. However, please be aware that the landscape for lending can change frequently due to a range of factors, including regulatory changes, economic conditions, and lender’s individual business strategies.

Some lenders that historically offered Buy to Let mortgages include:

1. Barclays

2. NatWest

3. The Mortgage Works (a subsidiary of Nationwide Building Society)

4. Leeds Building Society

5. Paragon Bank

6. Precise Mortgages

7. Aldermore

Some lenders have more experience with or may specialise in student accommodation properties or houses in multiple occupations (HMOs), which are common in student letting. When looking for a lender, you should consider their terms and conditions, interest rates, fees, and their criteria for rental income and property value.

What are the advantages of investing in student properties ?

Investing in student properties comes with several potential advantages. Here are some key benefits:

High Demand: In university towns and cities, there’s typically a high demand for student housing, which can lead to higher occupancy rates during term times. This demand can be quite consistent, driven by new students enrolling each year.

Higher Yields: Student properties, especially Houses in Multiple Occupation (HMO), often generate higher rental yields than other types of Buy to Let properties. This is because you can rent out multiple rooms individually, rather than renting the entire property to a single tenant or family.

Predictable Market: The student rental market follows a fairly predictable annual cycle, which can make planning and budgeting easier. For instance, you can expect to secure tenants at specific times in the year, usually around the start of term times.

Long-term Investment: Universities and colleges tend to be long-standing institutions, and there will likely always be students in need of housing, making student properties a relatively stable long-term investment.

Potential for Capital Growth: As with any property investment, there’s the potential for capital growth over time if property prices in the area increase.

Resilience in Downturns: The student property market is often less affected by economic downturns than other property markets, as the demand for education and therefore student housing can remain high even during times of economic uncertainty.

However, it’s also important to be aware of the potential challenges of investing in student properties. These can include higher levels of wear and tear, frequent tenant turnover, periods of vacancy (especially during summer months), and additional regulations if the property is an HMO. It’s essential to thoroughly research and consider these factors before deciding to invest in student properties.

What are the disadvantages of investing in student properties ?

While investing in student properties can bring some notable advantages, it also comes with potential disadvantages. Here are a few key points to consider:

Seasonal Vacancies: Student properties often face periods of vacancy, particularly over the summer months when students return home. These rental gaps can impact your annual yield if not accounted for in your financial planning.

Higher Turnover: Students typically rent for a fixed period (usually the academic year), resulting in a high tenant turnover compared to other rental properties. This can lead to more time and resources spent on finding new tenants and managing changeovers.

Increased Wear and Tear: Properties rented by students can experience higher levels of wear and tear. Maintenance costs could therefore be higher, which should be factored into the cost of your investment.

HMO Licensing: Many student properties qualify as Houses in Multiple Occupation (HMOs), requiring specific licences and adhering to certain standards, which can mean additional costs and administrative efforts.

Limitations on Mortgage Availability: Some lenders are reluctant to provide mortgages for student properties, viewing them as higher risk. This can make securing financing more challenging.

Market Variability: The demand for student housing can vary depending on factors such as the popularity of the university, changes in student numbers, and the availability of university-managed accommodation.

Local Regulations: Some areas have introduced Article 4 directions, restricting the conversion of family homes into HMOs. This could limit the availability of suitable properties in some areas.

Economic Factors: While generally resilient, student housing can be impacted by broader economic trends, including changes in international student numbers due to policy changes, global events, or fluctuations in currency exchange rates.

How many students can occupy a property?

The number of students that can occupy a property in the UK largely depends on the type and size of the property, as well as local authority regulations, particularly if the property is considered a house in multiple occupation (HMO).

A property is defined as a small HMO if at least three tenants live there, forming more than one household, and toilet, bathroom or kitchen facilities are shared. A property is considered a large HMO if it’s at least three stories high, houses five or more tenants from more than one household, and includes shared toilet, bathroom or kitchen facilities.

For large HMOs, a licence from the local authority is required. Part of the licensing process involves ensuring that the property has sufficient space and facilities for the number of occupants. Room sizes, the number of bathrooms, kitchen facilities, and fire safety measures are among the aspects considered.

Under national minimum standards in England, bedrooms in HMOs must meet a minimum size:

* For one person over 10 years old: 6.51 square metres
* For two people over 10 years old: 10.22 square metres
* For children under 10 years old: 4.64 square metres

These sizes are guidelines, and local councils may enforce different or additional standards. The standards also don’t apply in Wales, Scotland, or Northern Ireland, which have their own rules.
In addition to these regulations, some areas have introduced Article 4 directions, which can limit the conversion of family homes into HMOs.

It’s important to check with your local authority for the specific rules in your area before deciding how many students can occupy a property. Violating HMO regulations can result in significant fines, so it’s crucial to ensure your property is compliant.

Mortgage survey for a student HMO

When applying for a mortgage on a student house in multiple occupation (HMO), a survey or property valuation will be required as part of the process. This is conducted by a surveyor, who assesses the property to determine its market value and condition.

The survey serves two main purposes. First, it provides the lender with an assessment of the property’s value to ensure the loan amount is appropriate. Second, it highlights any structural issues or necessary repairs, which could affect the property’s value or the borrower’s ability to repay the loan.

Here are three main types of surveys that you might consider, each providing a varying level of detail:

Valuation Survey: This is the most basic type of survey, primarily aimed at providing a market valuation of the property for the lender. It may not identify all but the most obvious defects.

HomeBuyer’s Report: This survey is more detailed and will look at aspects like damp, subsidence, and the condition of the roof. It’s non-intrusive, meaning the surveyor won’t look behind furniture or under floorboards.

Building Survey: Formerly known as a structural survey, this is the most comprehensive option. The surveyor will check the property thoroughly, looking at everything from the roof to the foundations. This survey is advisable for older properties or properties in need of significant work.

For an HMO, there might be additional considerations. The surveyor may need to assess whether the property meets HMO regulations. This could involve looking at the size and number of rooms, the number and condition of bathrooms and kitchens, and the property’s safety features, such as fire doors and smoke alarms.

The cost of the survey will depend on the type of survey and the size and location of the property. It’s important to note that even if a survey reveals issues with the property, it doesn’t necessarily mean you can’t get a mortgage. However, you may need to renegotiate the price with the seller or agree on repairs before finalising the mortgage.

Establishing your budget

Establishing a budget is a crucial step when planning to invest in a buy-to-let property for student accommodation. Here are some steps and considerations to help you establish your budget:

Understand Your Financing Options: Research the mortgage options available for purchasing student properties. Determine what kind of deposit you’ll need (typically around 20–40% of the property’s value for buy-to-let properties) and the amount you could potentially borrow. This can give you a rough idea of your budget range for the property purchase.

Consider Other Purchase Costs: On top of the property’s purchase price, you’ll also need to account for additional costs such as stamp duty, legal fees, mortgage arrangement fees, survey costs, and potentially a broker fee.

Rental Income and Yield: Look at the rental market in the area you’re interested in and assess potential rental income. Remember, with student properties, you’ll likely face rental gaps during vacation periods. The gross rental yield (annual rental income divided by property price) can give you an indication of your potential return.

Running Costs: Factor in costs such as property maintenance, HMO licensing (if applicable), insurance, agency fees if you plan to use a letting agent, and potential advertising costs. Also, take into account possible void periods when the property may be empty.

Tax Implications: Don’t forget to consider the tax implications of your buy-to-let investment, including income tax on your rental income and potential capital gains tax if you sell the property for a profit. It’s wise to consult with a tax adviser who is familiar with property investment.

Contingency Fund: It’s good practise to set aside some money to cover unexpected costs like emergency repairs, longer than expected void periods, or changes in mortgage interest rates.

Potential Property Value Growth: While it should not be the sole factor in your decision, the potential for property value growth (capital appreciation) in the area might also be part of your long-term financial calculations.

Buying a student property for your child

Buying a property for your child while they are at university can be an attractive proposition. This approach, sometimes referred to as a “Buy for Uni” mortgage, can offer various benefits, including saving money on accommodation fees and providing your child with additional income from renting out spare rooms. Here are some key steps and considerations:

Review Your Finances: Look at your financial situation to see if you can afford a second mortgage or if you could release equity from your current home. You should consider all costs, including the down payment, mortgage repayments, maintenance costs, and property management fees.

Research Mortgages: Some lenders offer specific “Buy for Uni” mortgage products. These mortgages consider the student’s future income and the income from letting other rooms in the property when determining affordability.

Location: Choose a property near the university that’s also convenient for other amenities. This will make the property attractive to potential student renters.

Type of Property: You should consider the size of the property and the number of rooms it has. Houses with multiple rooms could provide rental income from other students, but may also require an HMO licence, which comes with certain responsibilities and costs.

Future Prospects: Consider the property’s future potential. After your child has graduated, you could continue to let it to other students, sell the property, or even use it for a different purpose.

Legal and Tax Implications: Consider the tax implications, such as potential capital gain tax if the property is sold for a profit in the future. You should also check your legal responsibilities as a landlord. It may be beneficial to consult with a solicitor and a tax adviser.

Maintenance and Management: Think about who will manage the property, handle repairs and maintenance, and manage the letting of rooms. Some parents opt to hire a property management company to handle these responsibilities.

Insurance: You’ll need appropriate landlord insurance that covers the building and potentially any contents. If you let the property as an HMO, ensure your policy covers this.

Buying a student property for your child can be a sound investment, but it’s important to fully research and consider the financial and time commitments involved. As with any property purchase, professional advice can be invaluable.

Can I rent out a property to my child?

Yes, you can rent a property to your child in the UK. This can often be a practical solution for parents looking to provide accommodation for their children attending university, for instance. However, there are several factors to take into consideration:

Mortgage Type: If you have a mortgage on the property, you’ll need to check the terms and conditions. Some mortgages, particularly buy-to-let ones, may have restrictions on renting to family members. You may need to obtain a “consent to let” or switch to a different type of mortgage.

Fair Market Rent: If you want to claim tax deductions for expenses related to the property (such as mortgage interest, repairs, insurance, etc.), you’ll generally need to charge your child a fair market rent. This is the rent that you could reasonably expect to receive from a stranger.

Tax Implications: The rent you receive from your child will generally be considered income for tax purposes, and you may need to declare it on a self-assessment tax return. However, if the rent is below the Rent a Room Scheme threshold (£7,500 per year, you may not need to pay tax on this income.

Property Maintenance: As the landlord, you’ll still be responsible for property maintenance and repairs, as well as safety checks such as gas safety and electrical equipment checks.

Tenancy Agreement: It’s a good idea to have a formal written tenancy agreement, even when renting to family members. This can help to avoid any misunderstandings or disputes down the line.

Legal Responsibilities: You’ll still have the same legal responsibilities as any other landlord. For example, you’ll need to protect your child’s deposit in a government-approved deposit protection scheme if you take one.

Which areas of the UK are popular for student buy-to-let mortgages?

London and other cities with a high student population are popular areas for student Buy to Let mortgages in the UK. Here are some areas that have traditionally seen high demand for student properties:

London: The UK capital is home to many world-renowned universities, including University College London, Imperial College London, King’s College London, and the London School of Economics, to name just a few. The city’s size and diversity also mean there’s a wide range of different areas that can be attractive to students, from central locations like Bloomsbury and South Kensington, to more affordable areas further out.

Manchester: Home to several universities, including the University of Manchester and Manchester Metropolitan University. The city’s student population is one of the largest in the UK.

Leeds: Hosts the University of Leeds and Leeds Beckett University, both of which have large student populations.

Liverpool: With institutions like the University of Liverpool and Liverpool John Moores University, Liverpool has a high demand for student housing.

Birmingham: The University of Birmingham, Birmingham City University, and Aston University are among several higher education institutions based here.

Sheffield: The city hosts two universities, the University of Sheffield and Sheffield Hallam University, with a significant student population.

Newcastle: Known for Newcastle University and Northumbria University, the city attracts many students each year.

Nottingham: The city is home to both the University of Nottingham and Nottingham Trent University.

Edinburgh and Glasgow in Scotland: Both cities have a number of universities and a high student population.

Bristol: The University of Bristol and the University of the West of England (UWE Bristol) attract a large number of students to the city.

These areas have seen significant demand for student housing due to the presence of large universities. However, the market can change, and it’s always important to do local research considering factors such as local property prices, potential rental yields, and demand for student rentals. Consulting with local estate agents, property investment firms, or university accommodation offices can provide valuable insights into the local market.

I have bad credit, can I get a student Buy to Let mortgage?

While having bad credit can make it more difficult to get approved for any type of mortgage, it does not necessarily mean that it’s impossible. Many lenders will consider a range of factors in addition to your credit history when deciding whether to offer you a mortgage.

For a Buy to Let mortgage, lenders might also look at:

Rental Income: Lenders usually want the potential rental income from the property to cover a certain percentage of the mortgage repayments (usually around 125–145%, but it can vary). This means they may be willing to consider applicants with less-than-perfect credit if the potential rental income is high enough.

Deposit: If you have a larger deposit to put down on the property (typically 25% or more), lenders may be more willing to consider your application, even if you have bad credit.

Income: Some lenders will also look at your personal income in addition to the expected rental income.

Credit Issues: The type of credit issues you’ve had and how recent they were can also play a role. For instance, a lender might be more willing to overlook missed credit card payments from several years ago than a recent bankruptcy or property repossession.

There are also specialist lenders who work with borrowers who have bad credit, although their interest rates tend to be higher.

However, each lender’s criteria can vary significantly, and many lenders have tightened their criteria in response to economic uncertainty. It can be helpful to work with a mortgage broker who has experience with bad credit mortgages, as they can help you find lenders who are more likely to approve your application.

Are student property Buy to Let mortgages more expensive?  

Whether a student buy-to-let mortgage is more expensive than a standard buy-to-let mortgage depends on several factors. The interest rates and fees charged by lenders can vary significantly depending on their assessment of the risk associated with the mortgage. 

Buy to Let mortgages often come with higher fees compared to residential mortgages. This could include arrangement fees, valuation fees, and potentially broker fees. However, it’s also worth noting that student properties can offer high rental yields, due to the potential for multiple rental incomes from one property. It’s important to consider all costs and potential returns when deciding whether to invest in a student Buy to Let property. 

Student Buy to Let mortgage rates

The rates for student Buy to Let mortgages can vary greatly and depend on a number of factors, including: The lender, loan to Value (LTV), your credit score, the property and rental income. It’s not uncommon to see rates for student Buy to Let mortgages in the range of 2% to 5%, but this can vary widely. Keep in mind that rates can change frequently, and the actual rate you receive could be different based on your personal situation and market conditions at the time you apply.

How to get a buy to let mortgage for a student property

Getting a Buy to Let mortgage for a student property follows a similar process to obtaining a regular Buy to Let mortgage. However, due to the unique nature of renting to students, there may be some specific considerations. Here are the general steps:

Research and Planning: First, identify your target property or properties. These are typically located in cities or towns with a high student population. Understand the local property market, student demand, rental yields, and any potential licensing requirements (such as those for Houses in Multiple Occupation, or HMOs).

Check Eligibility: Ensure you meet the general criteria for Buy to Let mortgages. These often include having a good credit history, being under a certain age at the end of the mortgage term (typically 70 or 75), and earning more than a specified amount per year. Some lenders may also require you to own your own home.

Seek Professional Advice: Speak to a mortgage advisor or broker who specialises in buy-to-let mortgages for student properties. They can provide advice tailored to your situation and help you understand the different products and lenders in the market.

Prepare Financial Documents: You will likely need to provide proof of income, a record of your assets and liabilities, your credit history, and any other financial documents a lender may require.

Mortgage Application: Once you have chosen a suitable mortgage product and lender, you can submit your mortgage application. This will include details about the property, its expected rental income, and your financial situation.

Property Valuation: The lender will arrange for a valuation of the property to ensure it is worth the purchase price and to assess its rental income potential.

Mortgage Approval: If your application is successful and the lender is satisfied with the property valuation and your financial status, they will offer you the mortgage. This will detail the terms of the loan, including the interest rate, the loan amount, and the repayment period.

Legal Processes: Once the mortgage is approved, legal processes will take place. This usually involves conveyancing solicitors who handle property ownership transfer.

Completion: Upon completion, the mortgage loan will be transferred to the seller’s solicitor, and you will officially become the owner of the property.

Management and Maintenance: As a landlord, you’ll be responsible for managing the property and tenants, maintaining the property, and ensuring it meets all necessary safety regulations. Remember that student rentals may involve additional considerations, like multiple tenancy agreements and more frequent tenant turnover.

Do I need advice for student property buy to Let mortgages?

Whether you need advice when investing in a student Buy to Let property depends on your personal circumstances, experience, and comfort with making financial decisions.

Here are some reasons you might want to seek advice:

1. Complexity: Buy to Let mortgages can be complex, with a range of different types and terms available. A mortgage adviser can help you understand these options and find the best mortgage for your needs.

2. Financial Planning: An adviser can help you understand the full costs of owning a Buy to Let property, including maintenance costs, insurance, taxes, and potential periods of vacancy. They can help you assess whether a Buy to Let property is a good investment for you.

3. Access to Products: Some Buy to Let mortgages are only available through advisers or brokers. By seeking advice, you could get access to a wider range of mortgage products.

4. Experience: If you’re new to Buy to Let properties or property investing, an adviser can guide you through the process and help you avoid common pitfalls.

However, it’s also possible to arrange a Buy to Let mortgage yourself if you’re comfortable doing so. This can sometimes be cheaper, as you’ll avoid adviser fees, but it will require more time and effort on your part.

Whether or not you decide to seek advice, it’s important to do your own research and make sure you fully understand any mortgage or property investment before proceeding. Be aware that property investing always carries risks, and you should only invest money that you can afford to lose.