Student Buy To Letting

Speculation has been rife about the impact the rise in university tuition fees will have on UK society, but few people have considered another potential casualty of this change - the buy-to-let sector.

Will there still be enough students to support this market and what pressures are landlords facing as they fight for their share of this potentially lucrative sector? Can private landlords survive this social change?

Student Loan

First, it is important to realise that rising tuition fees will not stop people going to university. The government is aiming to get 50% of school leavers into higher education by 2010, and with A-level students achieving record pass rates every year - 2005 saw a pass rate of 96% with 22.4% reaching grade A -more and more people are likely to be fighting to gain places in higher education institutions. Today, there are more than two million students so landlords targeting this sector are not going to suffer from a lack of demand.

But the introduction of top-up fees on top of tuition costs of more than £1,100 a year plus a greater awareness of debt all mean students will be more cash-aware than before. This could mean that despite the recent growth in demand for high end student apartments in places such as Manchester, the fiercest competition will be for the cheapest properties.

One problem this intense competition for cheap accommodation will cause is the ghettoisation of communities as students flock to affordable areas close to their campuses. This trend has already been highlighted in the media and is a growing concern in terms of security and property value for many residents of university towns. While residents are worried about the impact students will have on their communities, landlords have capitalised on this phenomenon by buying ing more properties in these areas.

But they are not alone in taking note of this trend and it has led to certain universities seeking to take more control over the housing of their students, which means individual landlords face more competition for tenants.

One way universities are tackling the housing problem is by encouraging students to live in large purpose-built blocks. These flats will typically be close to amenities and provide students with easy access to what they see as one of the most important aspects of going to university - a good social life. If these schemes become more widespread they will seriously challenge the hold private landlords have over this sector so they will have to become increasingly creative to fill their properties. One way private landlords will be able to fight purpose-built block encroachment onto their territory is to offer something that blocks can't - a sense of community. By investing in a four-bedroom house rather than a flat, then marketing it as a great place for a group of friends to live, investors can gain the upper hand.

But the fact that universities are taking control of their students' housing is not all bad news. Some higher education establishments will take out a lease on a private property and then sub-let it to students through a university housing service which will then take on responsibility for the property, providing the landlord with a low maintenance option.

This can help make the property more rentable, as it is seen as a seal of approval from the university that has taken it on.

As many students try to cut their costs they may want to live in larger dwellings so that bills can be spread across a greater number. While this can mean higher yields for landlords it also carries the possibility of extra charges.

On April 6 this year the Housing Act 2004 came into force and with it the implementation of the Housing Health and Safety Rating system aimed at improving conditions in private rented accommodation. In practical terms, landlords should be aware that if they own or are looking to buy a three-storey property - or a two-storey property including a basement if it is occupied - with the intention of renting it to five unrelated tenants, they will have to apply for a house in multiple occupancy licence from their local housing authority.

The licence is valid for five years and the fee, which will be set by each local housing authority, could easily be more than £1,000. As well as needing to be able to prove that their properties are fit and proper, landlords will also need to provide basic facilities for their tenants. These are that for every HMO there is one bath or shower, one toilet and one kitchen.

These are facilities that would hopefully be in place anyway and any broker advising their client should suggest that these are in place to make the property rentable and avoid having any void periods.

Landlords must be aware that they might have to be licensed to rent out their property. And it is important they understand that, when considering improvements to a property such as loft conversions, the increase from two storeys to three and potential extra room could leave them open to these licensing demands as well as extra building regulations.

The legislation also refers to unrelated tenants. In this case it might be worth advising prospective landlords that they should advertise and rent out their property as a single unit rather than as multiple units within. By doing this and ensuring that one tenancy agreement is signed by all rather than single agreements being signed, they can show they have related tenants and are therefore exempt from the legislation. While some industry pundits have shown a great deal of scepticism on the issue it should be remembered that the buy-to-let landlord is essentially providing a product to a consumer and all measures to improve the quality of these will be good in the long run, even if it means some financial obligations at the outset.

Forewarned is forearmed and one of the best ways anyone can survive social change is only to make a move based on a position of knowledge and understanding. So prospective landlords must be aware of hotspots around the university towns they are targeting. For example, certain areas in Nottingham and Newcastle see high competition for more desirable properties in fashionable suburbs. Choosing the right area can mean the difference between a steady rental income and having to discount rent to attract tenants. But it isn't only professional landlords who are targeting the properties in these towns - students' parents are getting in on the act too. Many people with sufficient equity in their main residences have done their maths and realise it is potentially cheaper to buy a property for their children while at university and rent out the extra rooms. This has some obvious advantages -the owner's child can act as an onsite letting agent, putting a stop to behaviour that could damage the property. The child is also likely to choose friends as flatmates so their parents have the comfort of renting out the property to people they know.

What distinguishes these two classes of landlord - parent and professional - is the length of time they will spend in ownership of the property. While a student's parent is only likely to retain ownership for the duration of their child's time at university and not much longer afterwards, the professional will not be affected by this and is likely to see their foray into buy-to-let as more of a long-term investment option.

The market is changing as larger institutions seek to cash in on the growing numbers of students in need of rental accommodation. There are also legislative changes that landlords must be fully aware of. They must ensure they are covered if they need to be. Without this, they could find their buy-to-let investment is a financial drain rather than the benefit they were hoping for.

So while there are plenty of students who need roofs over their heads there are many challenges too, and the growth potential for private landlords might dwindle over time due to increased competition.

Landlords must invest intelligently and be more creative. Flats are out, houses are in and there must be effort on the part of landlords to differentiate their product. All in all, it is an exciting and challenging time to be in the buy-to-let market.

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