Student property offers better returns for buy-to-let mortgage holders

01 October 2007
Landlords who have student property as part of their portfolios are finding that their investment is bringing them greater returns than those who do not, research from Paragon has revealed.

The specialist buy-to-let lender has found that student property yields are, on average, more than 25 per cent better than those which the general market has to offer, with portfolios holding student property generating a gross return of seven per cent, compared to 5.6 per cent for those without.

Landlords for whom student property makes up more than half of their portfolios are enjoying an average yield of 8.6 per cent, and student property accounts for 12 per cent of the buy-to-let property market.

There are currently 43 per cent of school leavers opting to go onto university, and the government hopes to see this rise to 50 per cent by 2010, so thousands of students will be setting off to university this month as the new academic year gets underway.

Nigel Terrington, chief executive of the Paragon Group, said: “Strong tenant demand in the student market is driving yields in that sector. If landlords select the right type of property in the right location, the returns from the student market can be extremely healthy.”

Landlords are also benefiting from a change in the traditional image of a typical student, as they are starting to take better care of properties in order to get their deposits back when tenancies come to an end. They also do not have to weather many void periods, as students have annual lets which means they pay rent over the summer; tenancies often come with a parental guarantee, and rent is often higher because students are typically renting per-room.

Mr. Terrington added: “Despite the ‘Young Ones’ image of students being rowdy and destructive tenants, the reality of modern student lets is quite different. The days of grants have long gone and students are more focused to make the most of their student debt-financed opportunities.

“Whilst there will always be a social element to university, students are looking after the property better to avoid losing deposits and incurring costs for repairs and replacements. A significant element in this is that the quality of student sector property stock is in considerably better condition than it was in the past due to a combination of increased investment by landlords and stronger regulation.”

“Most student landlords will have let their property for the following academic year by early spring due to the strong level of tenant demand and the competition between students for the better quality properties is fierce. This gives pricing power to the landlord.”

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