FT: Crunch time for student buy-to-lets

Typically, student lettings have been attractive to landlords due to their higher returns, given the rising student population. However, these landlords face challenges from the rising cost of buy-to-let loans, tax changes, and potential rent reforms that could disrupt the business model. Nonetheless, strong demand for student housing and rental yields of up to 6.7% in August 2023 make student property investment appealing, particularly in smaller university towns with less competition from purpose-built student accommodation.

The rising demand for student housing, driven by an expanding student population and constrained housing supply, has provided strong rental guarantees and occupancy rates. However, landlords must navigate the uncertainties posed by potential regulatory changes and the ongoing impacts of inflation and interest rates. Additionally, landlords are exploring international student markets, targeting affluent overseas students as a way to counteract financial challenges. This approach allows landlords to charge higher rents, providing a potential solution to the limitations faced by British students with tight maintenance grants. Despite these challenges, some landlords are finding success by investing in premium, well-located properties and adapting to the changing landscape.

Richard Ward, Head of Research for student lettings platform StuRents, says that while demand is up, the supply of student housing is constrained. Many councils, preferring students to reside in defined areas, make it difficult for landlords to turn domestic housing into houses of multiple occupation (HMOs), of which rented student housing is one type. Ward adds that the growth of purpose-built, institutional student housing has also slowed, with fewer new developments hitting the market. "What this means for landlords," he says, "is that you're probably going to get decent rental guarantees, decent yields and full occupancy. So, those broad fundamentals are pretty attractive."

However, challenges posed by rising costs and legislative changes mean this sector is more complex to navigate than ever before, and buy-to-let landlords are feeling the crunch.

Read more on the Financial Times, here.