There are a number of benefits to investing in student lets.
For the right properties in the right area, there is almost guaranteed demand year after year and student lets are often arranged early – up to six months in advance – which can minimise the risk of void periods.
The average yields on HMOs are also currently higher than any other property investment. According to the Mortgages for Business Buy to Let Mortgage Index, in Q2 of this year, HMOs delivered an average yield of 8.6%, compared to a yield of just 5.5% on standard buy to let property.
Meanwhile multi-unit freehold blocks delivered an average yield of 7.5% and semi-commercial property investments yielded 7.8%.
For these reasons, we often work with brokers whose clients have children who are going to university and want to invest in an HMO that can be used by their children and rented to other students to cover the costs.
This is a very practical idea, but it does carry some complications.
Letting a property to a relative is considered as regulated buy to let and this can restrict the number of options.
However, most lender definitions state that buy to let mortgages are considered to be regulated if at least 40% of the property is used by a family member.
So, if your client were to buy an HMO in which their child was to occupy one bedroom out of, say, five on a separate tenancy agreement to the other occupants, then it would not qualify as a regulated buy-to-let contract and you would have more options.
Cover stress test
In these circumstances, you should ensure that the rental income achieved by letting rooms to non-family members is sufficient to cover the stress test as this will provide the lender with comfort that the investment is sustainable.
However, in most cases, this is unlikely to prove a problem as the yield achieved on HMOs means that there should usually be excess rental income to cover the stress test.
If you are working with clients who would like to invest in student property that will be occupied by a family member, speak to specialists in HMO investments to structure the right deal to best meet their requirements.