Buy to let student accommodations face tough times

The year is 2023, and the UK student population has increased by 43% since 2000. This consistent increase also means a more reliable supply of rentals, which reduces the chances of a vacancy or void period. Buy to let student accommodation in UK hasn’t faced a slowdown since its inception despite rising prices. These rising prices help landlords gather equity in their property while the super-low interest rates help landlords make further investments. 

However, in the latest student housing news, the issues that impact buy to let student accommodation in UK are set to faze even student property landlords: erosion of tax reliefs, cheap mortgage debt and ever-growing inflation on costs of all kinds.

Buy to let student accommodation in UK is also facing a threat to their essential way of functioning. In the current model, student property landlords accept students based on fixed-term tenancies where the students are moved out after finishing a full year. This model is set to be abolished in the UK Parliament’s Renter Reform Bill.

Therefore, despite doing well over the years, landlords face the hint of a cloud of uncertainty due to shaky regulations in the future. 

Head of research at StuRents, Richard Ward, looking at the current student accommodation in UK landscape, says that while the rents soar consistently, the supply of student housing is slow and constrained. Many institutions and councils on a government level prefer students residing in defined areas of a city, which makes it difficult for the landlords to turn domestic housing into purpose-built student accommodation (PBSA). “you’re probably going to get decent rental guarantees, decent yields and full occupancy. So, those broad fundamentals are pretty attractive.” he added.

Demand has been booming and has been backed by various studies, such as the one conducted by Paragon Bank, which showed that smaller university towns yield better results on buy-to-lets. Therefore, if demand is not the barrier, then the issue most likely resides in the supply. One would assume that with such attractive ROI, more landlords would flock towards buy to let student accommodation in UK. While much research has not been conducted on the subject, the existing research shows that the phenomenon has not occurred. The Bank of England reported in July that there had been a net loss of 100,000 buy-to-let properties in 2022 (including the ones rented by non-students too). “Market intelligence suggests that larger-scale, professional landlords are taking up an increasing share of the market as smaller landlords exit”, which suggests that larger landlords and non-landlords have begun taking advantage of the situation. With high interest rates, property costs and uncertainty over the sector’s regulatory future, it is not easy for new entrants to break into the market. 

Another factor that affects the landlord market now is the demographics, where those who got into the market at the turn of the century seem to be wanting out now and considering the sale of some of their assets. 

Most of the smaller landlords with fewer homes in their portfolios seem to be accelerating exit from the market. Why is that? The cost of buy-to-let loans - fixed and floating - has reached many peaks in recent weeks. The average rate on a five-year buy-to-let fixed mortgage stands at 6.18% in 2023, compared to 3.18% in 2021. 

Compared to 2021, landlords pay 58% more, a number that stands at £15bn in mortgage interest every year. However, rent, too, has increased in the meanwhile. Can that be leveraged to offset landlords’ high mortgage costs? Experts believe many already do, but that has been limited by many factors, which are personal, local and national. The students' maintenance grants have been increased by 2.8%, well below inflation rates. “There is a ceiling. Landlords have to be cautious about rent increases because student housing is also very localised. It would be very easy to be very bullish about rent rises in one city and then and then get caught out by it elsewhere,” says Victoria Tolmie-Loverseed, assistant chief executive at Unipol.

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