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The UK's top yielding student buy-to-let locations

POSTED: 24th October 2013
IN: Guides
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Renting out your buy-to-let property to students can open up a reliable and regular market to a sector that is the least likely to default on rental payments.

undefinedRenting out your buy-to-let property to students can open up a reliable and regular market to a sector that is the least likely to default on rental payments.

According to recent (Sept 2013) research from the National Landlords Association, students are the most reliable sector to rent out property to.

The research found that only 38 per cent of landlords letting to students have experienced arrears in the last year, compared to arrears for 59 per cent who let to blue-collar workers in the last 12 months and 71 per cent who let to benefit claimants.

Student lets also have the lowest void rates, according to the NLA’s figures. It found that in the three months to May 2013, just 30 per cent of landlords who let to students had an empty property in the last three months, compared to 40 per cent who had a void period when letting to families and 49 per cent who experienced an empty period when letting to an older couple.

Carolyn Uphill, NLA Chairman, said: “It is encouraging to see such positive figures reported by landlords who let to students. However, it’s important to highlight that letting property to students – indeed, letting to any tenant group, is not an easy win.”

Recent research from property website Zoopla provides some surprising results on which UK cities provide the highest rental yield for student buy-to-let properties.

The best performing cities for student buy-to-let properties

The study found that northern UK cities took the top three positions with Glasgow first followed by Hull and Manchester.

Its research takes average asking prices for four-bed properties within major student centres, and compares these with average student rents achieved. This gives a gross yield.

The figures analysed average gross yields on four-bedroom student properties across the UK. Gross yield is defined as a yearly return on an investment before the deduction of taxes and expenses.

Stuart Law, CEO of Assetz, said: “It is no surprise to me that Glasgow, Hull and Manchester are the top three student buy-to-let towns for investors. They have very strong student populations and therefore strong demand and student investments continue to be one of the strongest property investment sectors.”

Lawrence Hall, Zoopla.co.uk spokesman, said: “The largest number of students or the most prestigious university clearly isn't necessarily best for investment returns.

“There is no apparent North-South divide when it comes to student buy-to-let investments and a number of towns in the North are showing higher gross yields than the South as a result of property values having remained lower over the past few years whilst rental demand has increased.”

Why are these areas performing well?

Many of the top performing cities are in areas where property prices are relatively low. This means landlords can make a good return in exchange for rents that are relatively affordable compared to other areas of the country. Other factors that are important are the relationship between the number of students looking for rental property and the supply of properties that are available.

Glasgow is top of the table because the cost of property is low compared to the average rents that can be charged, whereas in London house prices are accelerating at a rate that even record high rents cannot keep up with.

Why do students make good tenants?

Research from the National Landlords Association shows that students are the least likely sector of tenants to fall behind on rental payments. There is also a continuous flow of demand each academic year and a ready-made market place at the local universities.

Are there potential pitfalls of letting to students?

Student accommodation attracts lower capital appreciation than other types of property.

The rise of purpose built private student accommodation, to subsidise university halls, is gradually reducing the demand for private lettings.

Maintenance bills may be higher than average and students often can't provide credit references.

You may have a gap during summer vacations with no tenants.

Occasionally, if your student tenants are noisy and disruptive, you could face penalties from your local council.

Landlord checklist

When deciding on which area of the UK to invest in a buy-to-let student property landlords need to decide on a variety of factors.

“Landlords need to do their research and take into account the student demand, property supply, average property values and average monthly rents,” added Mr Hall.

The most important decision is to select the right location to invest in. This does not have to be an area you know because an agent can manage your investment on your behalf for a fee. However, if you want to manage the tenancy yourself, it is probably sensible to invest in an area close to where you live and one that you know.

A landlord needs to take into account of the supply of property in the area. Ask yourself, what type of property is there demand for? There is no point in investing in a type of property that there is no demand for.

Take a look at what universities are in the local area and where they are in the city. Invest in a property that is close to the facilities and that students want to live in.

You need to research rental costs in your chosen location to make sure that you receive sufficient income to cover the costs of the buy-to-let mortgage and other costs such as maintenance, agent fees and tax.

Research the cost of property in the area in relation to the rents that can be obtained. From this you will be able to work out a rough estimate of the rental yield you can get.

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