Considerations Prior to Making an Offer on an Investment Student Property

While students are busy preparing to go back to university or college, many of our clients are reminded of the lucrative returns that can be made in the student property sector.

There are many different aspects to putting in an offer on an investment student property, with a few major things to consider. Many people look at the location of the property alone as the main criteria for their investment property search. If a property is in the heart of an attractive city or near a university, why not pay the asking price and see how a refurbishment can add considerably to the value? Although location is an attractive aspect of buying an investment property and one of the key decision points of purchase, it isn’t the be all and end all.

At Residential Estates we guide our clients through the investment decision process. As an example, there are a number of other considerations to make before investing in a student property.   Such as……

The Price of the Property  This may sound like a simple consideration that any investor in property is bound to make, but it is always worth mentioning as it is so critical to every property transaction, whether for investment purposes or otherwise. With high demand and a low supply of good quality student property in certain city centre areas, it isn’t uncommon to find that properties that are listed with an offers over valuation to actually end up being sold for a valuation around 20% over that listed amount. Always have this in the back of your mind when researching potential investment properties.

Know the LTV   The LTV (Loan-to-value) of the student property will help a mortgage provider work out the rate of the mortgage. So for a 70% LTV mortgage you’ll be expected to come up with the remaining 30% of the student property valuation in cash. This can have a massive impact on the funds available to you when searching for a property investment.

*** HOWEVER ***

Many student investments are below 30 square metres in size and as such investors will not be able to get finance on them making them cash only investments, but for those investors able to raise the funds to purchase outright, the returns can be very lucrative – on average 6% – 10% NET.

New Lending Rules   Come 30th September 2017 there will be new rules for lenders to adhere to. The Prudential Regulation Authority (PRA) will require that lenders put together a stricter set of checks for the affordability of portfolio landlords. These new rules apply to any borrowers who have four or more distinct mortgaged buy-to-let properties, either together or separately, in aggregate. This can include the experience as a landlord of the individual, assets versus borrowing, cashflow history and a history of tax returns.

Stress Testing   Lenders will usually advertise a loan with a certain interest rate, say 1.99% but actually stress test the loan at a higher rate and add a student rent cover ratio on top of that. So you may find that a loan advertised at 1.99% is actually being tested at a much higher 7.99% (as an example). If the student rent is higher than the stress test, the loan will be agreed in most cases.

Planning Permission   Many student investment properties are attractive to the buyer because they offer a chance to develop and refurbish the structure before selling it on at an added value. In many cases it is important to understand whether planning permission will be granted for the property in question, as well as the ins and outs of requirements for planning consent on listed properties, building warrants and any planned change of use for the property. Undertake due diligence on all factors to ensure you understand all predicted costs in full before a transaction is completed.

Local Authority Regulations   There is a different responsibility and obligation in terms of regulations depending on the local authority your new student investment property falls under the control of. This ranges from landlord registration, tenancy deposit schemes, tax returns and fire safety measures. It is important to understand the relevant costs associated to your local authority prior to making an offer on a student investment property.

House of Multiple Occupancy (HMO)   If you are planning on the property to become a student house with multiple tenants who are unrelated, there are a number of strict regulations to adhere to. Speak to your local authority and understand the specific detail as it could cost you a huge portion of your budget to make sure rooms meet the minimum width, that kitchen worktops are the right size, there are strict electrical and fire safety procedures in place and many other considerations.

Tax Situation   In situations where a property is being bought for buy-to-let purposes there is the standard Land & Buildings Transaction Tax, beginning at properties valued at higher than £145,000, and the Additional Residential Property Tax, which is a 3.0% tax on the whole price of a property.

Student Rental Yield   You’ll want to know how much money you’ll see in return from your investment and local lettings and student property management agencies can provide you with some general ideas on rental prices in the area, and for property types similar to the property you are planning to purchase.  We tend to consider developments where we can offer our clients between 6% – 10% NET returns.

STAMP DUTY  Lastly a positive to consider when looking at purchasing an investment, Student investment developments will have in many cases NO stamp duty to pay.  In 2016 the Finance Act 2016 received royal assent and became law. One section of the new law has major implications for buy-to-let investors. You don’t pay the higher rate of stamp duty on accommodation for students in further or higher education, this is because student halls of residence are not classified as being used as a dwelling which means you pay the lower rate of stamp duty, up to £125,000, this is 0%. Many of the student investments we market are well below £125,000

Feeling a bit overwhelmed? Don’t be.   Residential Estates are specialists in the student sector so come to us for initial free advice.

For more information about student property investment advice and guidance we have to offer at Residential Estates, contact our office on 01244 343 355 or email We also have a live chat function on this page and a simple to use contact form where our friendly customer service team can return your call at your convenience.

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