Buy-to-Let Mortgages for Student Lets
Investing in student accommodation can be a lucrative move, find out how you become a landlord and what factors can affect your ability to borrow
With over 2 million students currently studying across the UK, investing in student accommodation can be a lucrative move, but how easy is it to finance student property?
In this article, we’ll look at the specifics of becoming a landlord in this niche, the factors that can affect your ability to borrow, and where to find the most competitive buy-to-let mortgages for this purpose.
What is a student buy-to-let mortgage?
A student buy-to-let isn’t a product in itself, but rather a standard buy-to-let mortgage offered by lenders who are happy to finance properties intended specifically as student lets. Not all lenders will support this type of application, as the additional considerations that come along with letting properties to students mean that they often view them as too high of a risk.
That said, there are plenty of lenders willing to lend in this niche, providing you’re able to meet their criteria. Each will have their own preferences, with property size and occupation levels playing a huge role in availability.
Anyone that’s able to meet lending criteria is potentially able to buy this type of investment property, however, if you’re a first-time landlord it may be more difficult to secure funding, especially for larger HMO properties.
It’s often an attractive opportunity for parents with children approaching university age, as it can be a good way to help provide them with affordable accommodation for university, whilst creating a long-term investment opportunity either for yourself, or to pass on to them.
If you do intend to let the property to your own children, however, only family buy-to-lets will be suitable for this purpose, as they are regulated buy-to-let mortgages.
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Buy-to-Let Mortgage Calculator
Our buy-to-let mortgage calculator can show you how much your mortgage could cost you each month and overall. Simply enter the rental property value, deposit, anticipated monthly rent, interest rate, mortgage term and our calculator will do the rest.
Capital and repayment:
Loan to Value ratio (LTV):
Most lenders won't offer buy-to-let mortgages over a LTV of 80%.
Interest Cover Ratio (ICR):
Most lenders require rental income to be at least 125%-145% of the interest repayments for a buy-to-let mortgage.
Get started with a specialist buy-to-let broker to find out how much they could help you save on your monthly mortgage repayments.
What types of property can you use?
There are two main types of student property, and the type you’re looking to invest in will have a big impact on the process:
PBSA (Purpose Built Student Accommodation)
PBSAs are often high-rise buildings with management, security, and modern facilities, such as WIFI and shared gyms, included in the investment cost, removing many of the responsibilities typically associated with being a landlord.
Sometimes referred to as pods or cluster flats, this type of purpose-built housing is typically invested in by experienced landlords. This type of property is aimed at cash-only investors and there are no mortgages or alternative finance options available at the current time.
Traditional student HMOs
Whether they’re converted houses or flats with shared facilities, student properties are generally considered to be HMOs (Houses of Multiple Occupation). If you intend to rent a property to a maximum of four occupants, it may be possible to do so with certain lenders without the need to apply for an HMO licence.
All properties intended for five tenants or more from separate households (or taller than 3 stories), however, will be classed as a large HMO, which means that a license will be necessary both from a legal perspective and most likely by the lender. There are unlikely to be lenders who are happy to lend on an unlicensed large HMO property.
Licensing costs vary by area, however, they all require renewal every five years. Some local authorities may even require planning permission for HMO properties, and there is a potential that they could be refused in an area where this property type is already considered to be overwhelmingly prevalent.
Even with a large HMO license in place, fewer lenders operate in this niche, so it can be more difficult to obtain a buy-to-let mortgage for this purpose without seeking advice from an experienced adviser.
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How to get a student housing mortgage
Getting a mortgage for student housing can be much more straightforward than you might imagine if you follow some simple steps through the process. First, make an enquiry with us and we’ll arrange for a specialist mortgage broker to contact you who can help with:
- Identifying the right type of investment property and advise you on any additional financial considerations (potential licensing fees, for example)
- Meeting any specific legal obligations, such as arranging the correct HMO license if required
- Finding the right mortgage lenders with experience in this type of lending and assist with preparing your application before submission
Advantages and disadvantages
Despite being a bit more difficult to secure than a standard buy-to-let, student properties are typically seen as a profitable investment, given the greater rental yield achievable. In fact, they are widely considered to provide higher rental yields than any other lettings sector.
Given their commercial property status, stamp duty is only payable on properties valued above £150,00
Students tend to be less concerned with decor and modern fixtures, given the short-term nature of their tenancies
There is always substantial demand for this type of let
It’s possible to obtain a guarantor for every tenant, providing you with a greater guarantee over your rental income
Higher turnover meaning greater letting management costs
Greater potential for complaints due to the nature of student-aged lifestyles e.g. frequent parties
Additional legal requirements, such as HMO licences, where applicable
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General buy-to-let criteria will apply, but there are also likely to be additional criteria related to your purchase type, which will vary from one lender to the next, such as:
- Landlord experience – Due to the complex nature of student lettings, some lenders will be less forthcoming in lending to first-time landlords, particularly for a large HMO, however, it’s not impossible to get this type of mortgage without experience
- Rental Yield – Although many lenders will apply the typical minimum rental requirement of 125% of the mortgage repayments, there are certainly some that will ask for a higher rental yield for student lets, and in some cases, this could be as much as 180%
You can use our calculator below to work out the potential rental yield on the property you’re looking to buy:
Rental Yield Calculator
This calculator will show you the rental yield on your buy-to-let property using either the original purchase price, plus associated costs, or the current value. All you need to do is choose which option you want to base your calculation on and your monthly rental premiums.
Gross Rental Yield:
Net Rental Yield:
Now you've worked out what your current rental yield is, why not speak to a broker to see what buy-to-let mortgage/remortgage opportunities are available? With their expertise in this market they'll be able to identify a range of new deals which could reduce your mortgage payments and, as a result, improve your overall rental yield.
- Property type – Lenders each have their own criteria regarding which property types are acceptable to them and specifically with student accommodation, where they are located, the size and occupant capacity and licensing requirements will all be considered by the lender.
- Legal obligations are met – If you require an HMO license, as mentioned above, the lender will likely need to see evidence of this
Which lenders offer them?
There are some high street lenders that operate in this niche, such as Santander, Barclays and Virgin Money. However, for some of these mortgage providers, this aspect of their lending is via intermediaries only, meaning you’ll only be able to access them via a broker.
Other lenders include…
- Shawbrook Bank
- Bank of Ireland
The larger the occupancy, the more likely it is that you’ll need a specialist lender for this type of mortgage, as the vast majority of larger lenders steer clear of HMOs.
Rates can be slightly higher than typical buy-to-let rates, but as with other forms of finance, the greater the size of your deposit, the more competitive the rates available tend to be.
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Can a student get a buy-to-let mortgage?
Yes, they can in certain circumstances, although, as it can be difficult to meet many of the associated criteria at this stage in life, it will typically be with a guarantor mortgage. There are even certain lenders, predominantly building societies, that offer buy-for-uni mortgages.
This very niche product can be an excellent way to invest whilst you learn, as it allows you the option to buy a student let to both live in and rent out the remaining rooms to maintain your mortgage repayments. It also allows student buyers to take advantage of the £300,000 stamp duty-free limit offered to traditional first-time buyers, which is not available for other forms of buy-to-let investment.
There are very specific criteria to meet, and the vast majority of applicants will need a guarantor (although you can potentially borrow 100% of the property value if you have one).
See our guide to buy-for-uni mortgages for a complete breakdown of the criteria.
Speak to an expert buy-to-let broker
Whichever type of buyer you are, financing a student buy-to-let investment property is not always straightforward. A mortgage broker with experience in securing buy-to-lets for both non-HMO and HMO properties will be able to help you find a suitable lender and through their bespoke advice and guidance, maximise the returns on your investment by sourcing the most competitive deals available to you.
Our free broker-matching service will pair you with an expert that has the most relevant experience for the scenario you’re looking at, whether that’s investing in your child’s future, expanding an HMO portfolio, or buying for uni. Simply call 0808 189 2301 or make an enquiry to take advantage of our no-obligation service.
Speak to an expert on student Buy-To-Let mortgages
Maximise your chance of mortgage approval with a specialist in buy to let mortgages
Unsurprisingly, the most popular locations for student investment properties are in locations surrounding universities. Typically those cities and towns with multiple universities, such as London, Birmingham, Leeds, Manchester, and Liverpool are strong investments, due to the high level of demand.
With the increase in popularity of PBSAs in recent years, however, it’s still a good idea to do your research to get a good feel for the local market and where HMO opportunities remain popular. This UCAS map of institutions can be a good planning tool, as well as the HESA list, which defines student numbers per educational institution.
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