Cash in on the student buy-to-let goldmine
If you're spending hundreds of pounds every month paying for your child's rent while they're away at university, you may find you'll be better off turning your expenditure into an investment and buying a home for your student offspring.
With parents often footing the bill for their child's accommodation, an increasing number are starting to discover that, rather than lining the pockets of a landlord, they too can profit from student accommodation by exploring buy-to-let.
The profits could be plentiful. Indeed, in university towns parents could achieve rental yields of as high as 10%. But buying a property to rent to your offspring and their university friends is not as straightforward as buying a run-of-the mill buy to let.
Getting a loan
Most buy-to-let lenders have no problem lending on student lets and, as such, landlords can access many best-buy products, with the likes of The Mortgage Works, Abbey and Accord leading the way. However, once you throw a family member into the mix, your options are significantly reduced.
"If you rent to any member of your family, this will become a regulated buy to let, and only a handful of lenders will offer this type of loan - for example, BM Solutions, Hinckley&Rugby, NatWest, Principality, Godiva and Virgin Money," explains Ying Tan, managing director of brokerage The Buy to Let Business. "Most of these lenders will treat the mortgage as residential for affordability and many insist that rent is paid at full market value."
Buy for uni mortgage
Outside traditional buy-to-let products, Bath Building Society has a Buy For Uni mortgage product offered at a three-year discounted rate of 5.04% with a 0.4% fee (at the time of writing). "An application can be made in the sole name of the student, or jointly between the student and their parents," explains Mark Harris, chief executive of brokerage SPF Private Clients.
"In the case of a sole application, a parental guarantee may be required. The student must have two or more years left at university. The actual amount you can borrow will depend on the income that will be received from letting rooms within the property."
Get a licence
Student properties also require a House in Multiple Occupation (HMO) licence. To apply for a licence, you'll need to speak to your local council or if you are using a managing agent, they can apply on your behalf.
With your mortgage and HMO licence in place, you need to make sure you're buying the right property. "When buying in a student area, it pays to remember the general rule: the larger the property, the more in demand it will probably be and you are likely to be inundated with potential tenants," says Harris.
Properties that can be adapted to have a flexible number of bedrooms or reception rooms are also a sensible choice. "The best student properties are often three-bedroom terraced houses with two reception rooms," says Tan. "Terraced houses are often lower value, and the opportunity to convert a living room to a bedroom can keep the cost down when purchasing."
Get template contracts
Harris adds that whatever you go for, the house should be in good condition or it will put tenants off. It's important to remember that while you're renting to your offspring and their friends, you must maintain a professional stance. As such, contracts must be provided. You can access the National Landlords Association's (NLA) approved tenancy agreements (which covers England, Wales and Scotland) for free at landlords.org.uk.
Similarly, appropriate safety standards must be met. All landlords have a responsibility to provide safe, secure accommodation and must comply with the Housing Health and Safety Rating System. However, many student areas are subject to discretionary licensing arrangements, which may include further requirements. In addition, some universities insist upon accrediting landlords and/or properties before giving their approval.
You'll also want to consider what you will do with the property during university holidays. Most student lets are arranged either as a standard 12-month tenancy or to coincide with term dates. "If the tenancy ends before the summer break, then the tenants will be expected to vacate," says Chris Norris, head of policy, public affairs and research at the NLA. "Landlords usually use this time to carry out maintenance and prepare for new tenants."
Landlord insurance is a must for any buy to let and even more so with student properties often left unoccupied for long periods of time. But landlords of student houses can expect to pay a high premium.
"It is not unusual for a landlord to pay more to insure a property occupied by students due to an increased risk of claiming," explains Simon Taylor, chief executive of insurance provider Uinsure. "Burglars often target student homes on the assumption that they will contain lots of high-value gadgets, such as computers and games consoles, and when a property is left empty, such as over the summer and at Christmas, there is an increased risk of vandalism and damage, such as that caused by frozen pipes and escape of water."
There are numerous specialist landlord insurance policies for those with student houses, but a good insurer will also cover student properties as part of their standard landlords' insurance policy. And BTL building insurance can be as little as £10 a month for basic cover.
The student property sector is certainly a lucrative one and becoming a landlord to your student children can reap big rewards - as long as you don't allow your role as mum or dad to cloud your professional judgement.
The catch-all term applied to investors who buy properties with the sole intention of letting them to tenants rather than living in them themselves, with the proceeds from the let usually used for the repayment of the mortgage. Buy-to-let investors have to take out specialised mortgages that carry higher interest rates and require a much bigger deposit than a standard mortgage. Other expenditure can include legal fees, income tax (on the rental profits you make), capital gains tax (if you sell the property) and “void” periods when the property is unlet.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.