Brokers have conflicting views on the sector's outlook
The student letting accommodation business is an area of the market often seen as having consistent demand, as year after year a steady stream of students look for private housing.
However, brokers have contrasting views on the strength of the sector going forward.
Substantial demand in student accommodation
Samuel Gee (pictured), director at Manning Gee Investments, said in prominent university cities, the demand for student accommodation is not only substantial, but also appears sustainable in the medium term.
“The evidence lies in the significant ongoing construction of purpose-built student housing and the consistently high demand for private student accommodation,” he said. Gee added that local authorities have shown considerable support for this trend, frequently granting change-of-use permissions for cherished buildings to meet the growing demand.
The appeal of student housing investment, Gee said, lies in its potentially attractive returns, particularly in cities where conventional rentals may face pressure from rising interest rates, eroding rental profits.
“This has led many homeowners to explore the transformation of their properties into student accommodation, capitalising on robust demand in this sector,” he said.
Austyn Johnson, founder at Mortgages For Actors, agreed with Gee that demand for student accommodation in prominent university cities has been consistent. This type of property, Johnson said, is a sound investment, as usually the terms get paid upfront and most of the landlords will ask a parent to be the guarantor.
“Once the paperwork has been signed, they are legally bound by it; there are also very few voids with this type of letting,” he said.
However, for those considering entering this line of business, Johnson advises they construct a thorough plan first.
“For starters, one should take a walk from the house they intend to purchase to the nearest university - if it takes more than 20 to 30 minutes, they should consider another,” he added.
Steven Hargreaves, mortgage and protection adviser at The Mortgage Co, said the need for student accommodation keeps growing.
“Times have changed from the past; as of 2022, an estimated 37.5% of school leavers now attend university, compared to between 5% and 15% in the 1970s and 1980s,” he said.
It is therefore natural, Hargreaves said, that an increasing amount of student accommodation is needed across the country.
“While many universities do have halls of residence primarily for first-year students, the majority move on to private accommodation in their final two years, leaving a consistent flow of students seeking housing,” Hargreaves said.
Restrictive criteria and pricing around student accommodation
Meanwhile, Scott West, director at Propertyze Consulting Limited, said although student let accommodation has always been high-yielding, lender criteria and pricing often steers potential investors away. As a result, he said this area of the market is frequently left unsaturated with newer, less experienced landlords.
West believes it is difficult to gauge the long-term popularity; before COVID, he would have said the market still had potential.
“However, with some universities now opting to allow remote learning on courses, there may be a downward trend in demand for student accommodation, which previously was a big factor in its profitability,” he said.
Those already in the market, West said, still have some time left, but for those looking to enter the market, he believes they may want to consider this a medium rather than longer-term investment strategy.
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