Want to cash in on the student property boom? Hit the North
WITH its great transport links, bustling nightlife, cultural scene and outstanding universities, it’s no wonder Glasgow is popular among students and young professionals. For property investors it also has an allure. The Scottish city is where landlords can expect to get the best returns on their investment, according to new data. This is thanks to high demand from tenants and property prices that are more affordable than most other major cities.
Landlords can achieve a healthy 13.92 per cent annual return by investing in a property let to students, figures from estate agent comparison website GetAgent suggest. Glasgow is also one of the UK’s most student-populated cities, with more than 185,000 across its six higher education institutions. Newcastle and Durham in the North East are in second and third place, offering returns of 10.7 and 8.8 per cent respectively.
House prices in central Glasgow are £231,243 on average, says GetAgent, which analysed Land Registry and its own customer data. This is compared with the average UK house price of £285,000. A three-bedroom house in Glasgow, perhaps with one reception room converted to another bedroom, would bring in a total average rent of £2,684 a month based on four students each paying £671. This would total £32,200 a year, a yield of 13.9 per cent. Should you leave it as a threebedroom house, you would achieve a yield of 7.7 per cent, although students will likely pay a higher rent to have a living room.
Yield, or return, is calculated by dividing the annual rental income by the property’s value then multiplying it by 100. However, it doesn’t include costs such as mortgage interest, insurance or maintenance. These costs should always be included when estimating returns to see whether it’s worthwhile. For example, borrowing £170,000 for a £231,000 property on an interestonly mortgage at 5 per cent would reduce your annual yield from 13.9 to 10.2 per cent.
Buyers of student accommodation are typically either established buy-to-let landlords looking for rental income and capital growth, or parents who buy a house for their child to live in while at university – to allow them to live more comfortably and potentially make money.
Pamela Aitken of the Glasgow sales development team at Savills, says the city’s popularity shows no sign of waning. Students often stay on after graduating, thanks to good employment opportunities in the area. Barclays and JP Morgan are among large banks in the city.
‘The relative value of properties in and around Glasgow, coupled with the rental yields these can generate, is certainly an attractive proposition for the bank of Mum and Dad, especially when viewed as a longer-term investment with graduate retention rates in the city at 41 per cent,’ she says.
Also offering the likelihood of healthy returns are Newcastle upon Tyne and Durham. Both are home to prestigious universities that are part of the Russell Group. Dundee and Edinburgh complete the list of the top five student locations offering the highest yield – each around 7.9 per cent.
Properties in the North are typically more affordable and those in central parts of cities close to shops, bars and restaurants can command high rents – offering landlords a higher yield compared to properties in the South where house prices are significantly higher. For example, in Brighton the average property price is £526,176 and the average rent per year (based on a four-bedroom property) is £31,896. This rental income is roughly the same as Glasgow, says GetAgent, but the initial purchase price is almost double meaning an annual yield of 6 per cent before costs.
Students typically live in a shared house after the first year. Landlords can let the property to multiple students on a yearly contract, with students expected to pay rent all year round – even in the summer months when term has finished. Void or vacant periods are likely to be low in areas where there is high demand from students. Popularity of such housing is continuing to rise thanks to UK student numbers, now at a record 2.86 million.
Like other buy-to-let landlords, student property investors have had to adapt to changing market conditions over the past few years. Higher interest rates have increased mortgage payments, while the reduction in tax reliefs has also dented returns. That said, for investors with a low mortgage or no mortgage, income from student rent can lead to a decent return on your savings.
Duncan Kreeger, founder of property investment platform TAB, says prospective student landlords should consider towns and cities where there is a high annual student intake. It is also worth considering areas where there are high numbers of international students. ‘For instance, Chinese students often seek high-quality properties with rental yields at a premium,’ he adds.
Landlords who rent out houses may also be up against a growing supply of purpose-built student accommodation and so will need to ensure they offer something competitive and that there is enough demand to go around.
Students also tend to move after one year, so landlords will need to be prepared to find and establish new tenants every year or factor in the cost of using an agent.
Pete Mugleston, managing director at Online Mortgage Advisor.
‘Glasgow is an attractive proposition’
‘Chinese students seek high-quality properties’
co.uk, says Nottingham and Leeds are other cities that could prove lucrative for student property investors. In Nottingham, which has two prominent universities, the average property price stands at just £196,037. Average monthly rent in the city is around £660 but properties near the city centre can command as much as £1,242.
In Leeds, home to 65,000 students and five universities, yields can be 6.5 to 7.05 per cent. Pete recommends Hyde Park, Headingley and Woodhouse as top locations for investing in student accommodation within the city.
‘Rent prices have been steadily rising each year, paralleling the growth in property values, making it an opportune time to invest in this area,’ he says.