Some students at a university yesterday

Investing in student buy-to-lets: where are the best returns?

A new report reveals the importance the UK private rented sector plays in student accommodation and where landlords can expect to earn the best returns from student buy-to-lets.

Privately rented properties are the most popular choice of accommodation during university term-time. With this strong demand, investing in the student letting sector has become popular among both institutional and private investors.

A recent report by Paragon Bank examined the role the private rented sector (PRS) plays in the UK’s growing higher education system. Across the globe, the UK is the second most popular destination for students studying overseas.

With a draw from domestic and international students, leaving home to study is an important part of the university experience. The PRS helps provide high quality, flexible accommodation for the growing number of students who are drawn to the UK’s 143 universities.

Growing demand

With evidence of growing demand and strong rental yields, this is leading more investors to look at student buy-to-lets. And rental demand will likely always be high in university cities.

Currently, only 13% of UK landlords let to students. However, landlords who focus on student lets have a strong desire to grow their portfolios, particularly those with large portfolios.

Of those surveyed by BVA BDRC on behalf of Paragon Bank, 83% said they were unlikely to sell during the next year. And 33% said they will likely buy a student buy-to-let property in the next 12 months. This increases to 50% among landlords with 11 or more properties in their portfolios.

Strong rental yields

Within the report, new data reveals that buy-to-let landlords who have student buy-to-lets in their property portfolios are consistently achieving higher yields compared to those who don’t. In the survey, 79% of landlords said rental yields were what makes letting to students so appealing.

Rental yields are always an important consideration for landlords and investors. These can widely depend on the property and tenant type and location.

Data on average yields can provide investors an estimate of what they could expect to achieve. With legislative and tax changes in recent years, more landlords are focusing on achieving strong rental yields. This makes it an important consideration for any property investment.

Smaller university cities and towns

The study also revealed that investors with student buy-to-lets are seeing the best returns in smaller university towns and cities. Seven of the top 10 locations only have one main higher education institution.

The 10 best locations are all earning landlords an average rental yield above 7.5%. Additionally, the majority of towns and cities are located in the north of England.

Swansea was deemed the highest yielding location for student buy-to-lets with a 9.56% yield and an average yearly rental income of £18,178. Then, Hull, Plymouth and Liverpool followed with 8.60%, 8.41% and 8.25% yields respectively. Coventry rounded out the top five with an average rental yield of 7.91%.

Chester, Stoke and Lincoln then come in sixth, seventh and eighth. Preston has been home to an average yield of 8.01% and annual rental income of £19,178. Leeds followed closely behind with a 7.62% yield and £19,052 rental income.

Richard Rowntree, managing director of mortgages at Paragon Bank, says: “When it comes to student property investment, heading to the major cities doesn’t always generate the best returns, as these figures demonstrate.

“Smaller towns and cities will typically have a lower proportion of purpose built student accommodation, which has become more commonplace in major cities, whilst major cities also offer a wider array of property that students can rent, such as city centre apartments or build-to-rent schemes.”

At BuyAssociation, we have a number of investment opportunities in university cities and towns in the north of England and Midlands. For more information, sign up as a member free of charge.

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