University towns have always been popular targets for buy to let and many parents look into this option to provide a housing solution for their student children as well as an investment opportunity for them.
Over the last five years, some of the best investment returns have been within the buy-to-let market although recently there has been a note of reticence in this sector. Despite recent figures from the Association of Residential Letting Agents indicating some areas, such as parts of London, Manchester and Newcastle, are oversupplied, most commentators recognise there are areas still ripe.
Certainly, the old adage ‘ location, location, location ‘ will be more important than ever in the foreseeable future, because while letting out a property to students seems a win-win situation, the current market will not be kind to the ill-prepared. So, aside of their mortgage options, what general advice should advisers be discussing with parents considering this option? While the picture will vary for each individual, there are some golden rules clients should be aware of to ensure they avoid any unnecessary difficulties in the future.
The most important rule for would-be buy-to-let investors is to do your homework.
Parents considering this option should take time to consider what sort of property they want to buy and where they want to buy it.
It may sound obvious, but if they are trying to attract student tenants, they need to know which areas are most popular with that community. They should seek professional advice from surveyors or estate agents active in the local lettings market.
Other points to remember are to have some capital in reserve. The summer months can often be a lean period for landlords in university towns. So landlords need to ensure they have the finances to cover any void periods and budget for ongoing maintenance.
Flexible mortgage features can be a great way of ironing out the feast and famine and with most new mortgages now issued with flexible terms, such as the ability to overpay and payment holidays, as standard. This will become an increasingly useful financial planning tool for buy-to-let investors.
On a final note, as the buy to let market matures, remortgaging activity will gather pace. Existing landlords should be actively monitoring their remortgage options. Saving money on monthly mortgage payments may mean that even if your client does experience a drop in rental yield, they may not lose out in real terms.
Ray Boulger is senior technical manager (mortgages) at Charcol