Despite the recent economic turmoil, we feel it's important to consider all the wider economic factors surrounding the student property market. However, at the heart of the appeal of student property is the increasing large structural imbalance in the supply of student property throughout the UK.

According to the latest UCAS figures, in excess of 493,000 new undergraduate students enrolled into UK universities and colleges for the 2023/24 academic year. These UCAS figures, coupled with ONS population projections suggest that this will translate into a 16% increase in UK student numbers by 2030.

Interestingly enough, we've actually seen a significant increase in the demand for purpose-built student properties since the start of 2023, and we feel there are a number of key factors which are driving this.

1. Half A Million New Students Enroll For The 2023-24 Academic Intake

Recent reports have shown another huge intake of new students enrolling for tertiary education in the UK, with in excess of 493,000 new undergraduates starting courses at British universities. 

2. Private Landlords Leaving The Student Sector

A recent report from Hamptons showed that through 2022, a far higher percentage of landlords were selling up rather than increasing the size of their portfolios.

In fact, it was estimated that the UK property market would lose an average of 3,800 buy-to-let properties every month through 2022, an annual loss of over 45,000 rental properties from the market. Whilst this is a cross-section of the wider buy-to-let market, it would be a fair assumption that a large percentage of these properties were being rented out to students.

As the amount of available stock for students decreases over time, this will undoubtedly put increased pressure on the existing PBSA stock, especially throughout the larger UK university destinations such as Liverpool, Nottingham, Manchester, Sheffield, Newcastle, Leeds and Glasgow.

The recent academic intake of September 2023 which we have recently experienced was similar to that of 2022, in that it was predominantly characterised by a significant shortfall in the availability of appropriate accommodation throughout the UK's leading university towns and cities.

As private landlords continue to sell their traditional buy-to-let properties surrounding the universities throughout the UK, the structural demand - supply imbalance looks set to not only continue, but to increase significantly over the years to come. 

3. Interest Rate Increases

As interest rates continue to increase as a means to combat inflationary pressures, more investors have looked to invest without the use of finance or mortgage. With student property not typically being accessible through levered purchases such as these, many investors are now looking at student property as a way to generate higher yielding returns from their capital.

Considering the evidence above, it is clear to see a classic demand/supply imbalance at play. What is also clear is that this imbalance looks set to get significantly worse in the short to medium term, as universities continue to market aggressively to prospective students, and landlords continue to exit the market at an unprecedented pace.

The result of this imbalance is sustained upward pressure on the student rental fees, and this is likely to follow through into student property valuations over the course of the next one to two years.

As we mentioned earlier, despite the recent economic and political turmoil throughout the UK, we have experienced a significant increase in demand for student properties from our investors who now feel that student property represents a strong asset class for investment.

Over the course of the past 10 years we have witnessed a considerable growth in demand for student investment properties in the UK, both from UK-based investors as well as those based overseas.

Key to the appeal of these types of investments is the high yield on offer from student property, which currently averages between 6.5-8% per annum. Compared with standard residential buy-to-let investment which averages in the region of 4.5-6.0% per annum, it's easy to see why so many investors have chosen to add student investment properties to their portfolios.

Recent figures have shown that student rents throughout the UK are increasing by approximately 3.5-4.5% per annum. With the overall demand for purpose-built student accommodation increasing all the time from increasingly discerning students, it's no surprise that student property investment is now considered to be one of strongest performing asset classes for investors.

It is also worth noting that student accommodation investment is considered to be completely 'hands free.' In other words, the property management company will be responsible for all aspects of the development including maintenance, sales and letting and day to day management.

You simply receive your rental income, which is typically paid out quarterly in arrears from the management company. For this reason, we believe that working with the correct management company is often key to ensuring the long term success of a student property investment, as this is something we discuss in detail with clients looking to invest in student property.

We have been operating in the student property sector for over 12 years, from the very start of the PBSA sector. When these types of properties were first sold to investors, it was considered a rather niche style investment, and the majority of investors and landlords who did purchase back then did so on a smaller scale, with a view to testing the market prior to making larger purchase decisions.

In recent years however, the purchasing of a student property to sit within an existing portfolio (or even as a standalone investment) has become far more mainstream, and today many thousands of property investors have purchased single or multiple units to sit alongside their residential and commercial investments. In particular, the lower costs of the typical student studio mean that a wider range of property investors were able to invest in the market.

What has changed in recent years is the type of student properties which clients are looking to invest in. Whereas the student property market ten years ago was characterised by off-plan student property purchases in the major Russell Group student cities such as Glasgow, Manchester, Liverpool and Sheffield, today investors are looking for more clarity and openness with regards to the potential returns on investment through this type of property.

As such, we will always try and provide as much detail as possible regarding the potential financial returns of these properties, and all marketed properties will include details regarding the gross rental income, number of weeks of a tenancy, and weekly rental achieved. However we will also provide details regarding the potential outgoings and deductions from this type of investment. 

A question we are asked many times each day is “Where Is The Best Place To Invest In A Student Property?” The reality is that there are a number of factors to consider in this, and these factors may well change from one year to the next. For example, you will need to consider how many full time students study in the city or town where you are considering? What is the current availability of student housing in that local area? Are there a large number of other student developments in that location already, or are there relatively few?

Over the years of selling student properties, we have always found that the larger university towns and cities have proven more popular with investors, and typically, these have followed through into becoming highly successful investments. For example, one consideration may be that the town has more than one tertiary level education establishment. Many cities in the UK are home to some older, more traditional (eg. Russell Group) universities, but also home to larger, new status universities resulting in larger numbers of students looking for accommodation in the area every year.

Another consideration is whether or not the universities where you are looking to invest are popular with overseas students, the reason being that overseas students tend to be more attracted to the more modern, purpose-built student studios due to the higher specification on offer. With overseas students often being prepared to pay higher rents to be located in close proximity to the universities, this does give the opportunity for higher rental yields.

Having worked in the student property investment sector for over 10 years now, it's fair to say that the most common question we are asked is "Where is the best place to invest in a student property?" This is understandable, with choice of location being one of the most important considerations for clients considering investing in a student property in the UK. The reality is that there are a number of excellent locations where to buy a student property, and destinations such as Glasgow, Manchester, Sheffield, Leeds, Newcastle Under Lyme and Newcastle Upon Tyne all offer excellent investment opportunities.

When we speak with investors, this discussion about location is one of the first points we address with you, going through each of the major locations, to give our clients a more rounded understanding of both the pros and cons of each destination. We also discuss some of the 'softer' issues which sometimes sit on the periphery of the calculation. For example, what has been the program of new student property developments being built in recent years? To what extent is the local market undersupplied? Who are the prominent management companies in this particular destination?

It's also worth noting that in many smaller university towns, the level of current development is still relatively low, and as such the fewer developments which have now been built are near the main university campuses. Location, location, location is a mantra which very much applies when considering where to buy your student property.

What Has Been The Impact Of International Students On The Student Property Market In The UK?

It is widely acknowledged that the growing number of international students attending UK universities have been a key consideration within the UK student property market, and a recent report from Universities UK International and the Higher Education Policy Institute clearly revealing the growing importance of this sector, generating an overall contribution of approximately £42 billion to the UK economy. More importantly, these figures represented an increase of 34% over the previous three years.

With regards to the impact of the international student specifically on the student accommodation sector, it's been interesting to observe that the growing influence of overseas students (typically higher disposable income) has coincided with the dramatic growth of the purpose built student accommodation (PBSA) sector. Far from being satisfied with the traditional suburban student buy to let property, the overseas students often proved more discerning clients, demanding higher specification properties, better broadband and networking, and city centre locations.

When looking at whether or not it’s possible to use mortgage finance to purchase a student property, it’s important to distinguish between the different types of student property. The reason for this is that mortgage finance is typically available on one type, but not the other.

House of Multiple Occupancy (HMO)

Regardless of whether they’re converted houses or flats with shared facilities, student properties are typically considered to be a House of Multiple Occupancy (HMO). Different criteria do typically apply to ownership of these types of student properties, such as the requirement for an HMO licence.

Often lenders will require you to have a licence before they will consider lending on this type of property. However, whilst there are a smaller number of lenders who operate within the HMO mortgage sector, it is possible to obtain finance for a purchase on this type of property.

Purpose Built Student Accommodation (PBSA)

Often developed as studios with a larger development, PBSA style properties are typically purchased as a cash investment rather than mortgage finance. Given the smaller size of the PBSA studios (18-30sqm), high street lenders will not typically offer mortgage finance against these purchases.

However, the lower costs of PBSA studios, relative to the higher costs of a typical HMO property does mean that these style units are a viable student property investment option for many investors.

If you are purchasing a student property in England, then the likelihood is that you will be purchasing on a leasehold basis, and usually these will range from 125 years up to 999 years. If you are purchasing a student property in Scotland, then you will likely find that this comes with 'unfettered ownership' which is the equivalent of freehold in England.

Purpose-built student properties are typically ‘block managed’ by one of a number of experienced student property management companies. The property management company is responsible for the day-to-day maintenance and upkeep of the room and the development as a whole. Within the larger student developments, a permanent member of staff from the management company will be on the site on a daily basis to assist with enquiries and any issues which arise.

Having worked in the PBSA sector for over 10 years, we have learned that professional and efficient management of your student property is critical to its success as an investment. On a daily basis, we work with all the leading student property management providers including Xenia Student Lettings, Cloud Student Homes, X1 Student Lettings, StudentFM, Primo Property Management and many others. 

No, as mentioned above, the purpose-built student studios are typically block-managed by one of the specialist companies within this sector. It is worth noting that the vast majority of our clients who purchase student properties are actively seeking this ‘hands-free’ investment option, as it allows them to get on with their day-to-day lives.

Approximately 50% of our clients who invest in student properties are based outside of the UK, and everyday we speak with clients from Hong Kong, Singapore, Dubai, Malaysia, China and throughout continental Europe. The key reason that overseas clients deliberately choose us is our local market knowledge.

Far from following the 'call centre' approach to student property investment, we're regular visitors to the projects and sites we sell, both during the sales process and beyond. This ensures we are able to provide up-to-date information on the projects and properties we represent, ensuring our clients make more informed decisions regarding student property investment.

A great question, and one which we’re asked almost every day at Pure Investor! Based on our 10 years experience in selling student properties throughout the UK, we now very rarely will include a student property which offers an assured rental return. The developer who we DO offer it on, has an exceptional track record of delivering rental payments to our investors over many years, and as such we continue to carry their properties.

For us, there are a number of key questions to ask when you are considering purchasing a property with an assured rental income. Firstly, who is actually offering you the assurance? Is it the main development company, or is it a smaller subsidiary (Special Purpose Vehicle) especially set up for this development only? The reason this question is key is that if something goes wrong with the development, it is likely that there is very little funds left in the SPV. As you are not contracted to the main development company, you will not be able to make your claim against it.

Secondly, you should get confirmation of the actual, NOT PROJECTED costs of the service charge prior to buying. The reason is that the costs are nearly always far higher than marketed initially. If these service charges are substantially higher than projected, your returns will be far lower, and subsequently your resale valuation will be significantly lower. Get the costs in writing.

The typical conveyance period for purchase is currently 3-4 months.

The management company will be responsible for the payment of your rental income, and whilst payment dates and process do vary slightly from company to company, the rental payments are typically made to investors every 3-4 months on a cycle and in arrears.

Your management company will be responsible for the marketing of the unit and finding the tenant for you each year. Typically, this is an undervalued part of their service, with many of the more experienced student property management companies marketing the properties proactively throughout the UK and overseas many months in advance of the tenancy start date.

For investors considering purchasing a student unit, we would always suggest that you have a look at the website of the management company, to see how they are marketing the rooms (normally for the following year). Ask yourself if you like the way they present the development and the rooms? Would you apply for it if you were a student? How many other developments are available throughout the local area?

It is the responsibility of the management company to maximise the occupancy rates for your room throughout the year, however typically tenancy periods tend to vary between 44 weeks and 51 weeks in England. Many management companies also look to rent the student properties out throughout the vacant summer period, however this revenue should be considered an additional bonus rather than expected.

In Scotland, the rules are different, as all tenancies are considered Private Residential Tenancies. This means that the tenancy is ‘open-ended’ and there is no minimum period. This does make the calculation for yields more difficult for student properties in Scotland, however it also allows the additional benefit that many students will stay in the room for a prolonged period. It is worth noting that the extremely high occupancy rates experienced throughout the major Scottish student cities have resulted in many students continuing to tenant the same room rather than risk missing out altogether. 

The student will always pay a deposit on securing the room at the beginning of the tenancy, and as such a deduction will be made from this if damage was incurred.

Student studios will typically come with either electric or gas heating within the property, and these bills are paid by the investor via the service charges. Typically, the service charges on PBSA properties are considered high in relation to other forms of property investment, however the net rental yield is still robust given the lower purchasing price and higher weekly rental fees.

With all student property purchases, we will provide details of the service charges for the unit for your consideration, and we make every reasonable effort to ensure that these figures are kept up to date. It is also worth noting that during the conveyance process, the management company will provide your solicitor with a ‘management pack’ (LPE1 – England only) which provides a breakdown of the costs and incomes for your specific unit.

You always retain the option to use your own solicitors, however we would always recommend you use a solicitor with a good level of experience in conveyance within purpose-built student property.

We have a panel of solicitors who have this type of experience, and our sales progression will be able to get you a quote for their services if you require.

When purchasing a student property, we would recommend you budget approximately £1,200.00 - £1,500.00 for the purchase.

Every development and management company is different, but for our illustrative purposes we would always look to deduct the three largest fees from the gross rental income. These are the annual service charge, the lettings fee and the ground rent (where appropriate, Scottish units are freehold).

Rental yields can and do vary, and we would always suggest that clients look at all factors rather than simply yield. However, the majority of purpose-built student properties which we sell offer a net rental yield which ranges between 6.0% and 8.0%.

Will I pay stamp duty when buying a student property in England?

When purchasing a purpose-built student property (for the sole purpose of students) in England, then no stamp duty will be chargeable under £125,000.00. 

Will I pay stamp duty when buying a student property in Scotland?

The purchase of student properties in Scotland will be subject to the Additional Dwellings Supplement (ADS) which is chargeable at 6% (across the full value of the property) for properties sold in excess of £40,000.00.

Yes, and we would suggest an approximate figure of 3.5% - 4.5% per annum, which is closely aligned to the annual increase in student rental fees. However, more recent reports have stated that the growing structural imbalance between student property supply and demand is likely to see the rate of capital appreciation increase up to 5% in 2023 (for further details, please see Knight Frank Student Housing Report - February 2023). 

It will always be difficult to predict future capital appreciation of student properties, however the increasing number of private landlords (typically HMO’s) who are leaving the sector is likely to place more upwards pressure on PBSA prices due to the lack of availability and alternatives in the short to medium term.

In recent months (since the beginning of 2023), we have actually seen a considerable increase in the weekly rental fees being paid by students for the new academic year (annual tenancies commencing September/October 2023). From speaking with the numerous student management companies, these increases seem to be consistent, and both in England and Scotland. We feel this is a result of the high number of private landlords who are withdrawing from the student sector, resulting in extremely high demand for student accommodation in the major university towns and cities. 

We specialise in selling purpose-built student properties, and if you’re looking to sell, we’d like to think you’d consider giving us a call! The secondary market for student properties has grown considerably in recent years, with investors looking to mitigate their risk, and instead purchase student properties where the costs and rental incomes are more transparent.