Top universities offer mixed bag for BTL investors

Top universities offer mixed bag for BTL investors

Online estate agent StudentTenant.com said high demand for spaces at the top universities, means landlords in top performing areas can rely on filling their rooms. Some of the UK’s most prestigious and highly ranking universities can receive up to five applications per place, forcing them to turn away nearly 80% of applicants.

However, not all top universities are a good bet for investors.

Out of the top 10 ranking universities, Durham (pictured) is among the cheapest places to invest; averaging £151,465 for a four bedroom property and rental yields of 5.22%. Durham University ranked sixth in this year’s University League Table.

Warwick, which has a student population of 25,000, ranks second when it comes to rental yields, and is eighth in the academic league table. Average four bedroom property prices in the area are among the highest in the UK at £338,220, but landlords can expect rental yields of 5.11%.

Loughborough – tenth in the University League Table – has the third best yield, with landlords expecting rental yields of 5%.

Meanwhile, the top performing universities are less attractive from a property perspective. While the University of Cambridge ranks first in University League Tables, it is seventh in the top 10 for rental yields, with yields of 3.64%. Second placed Oxford offers yields of 4.12%, and London is the worst performing location for buy-to-let student landlords, with rental yields of 3.46%, and high property prices.

Danielle Cullen, managing director at StudentTenant.com, said rental yields are important but are not enough on their own.

“There are many things to consider before purchasing a student rental property. Is the property located near the university? Does the property have parking spaces? What is the current condition of the property? It’s important to collect as much information before taking the plunge, to ensure you get the best possible deal.”

She added: “Looking just at rental yields for the top ten ranking universities, it might seem attractive to invest in a student property in an area like Warwick or Loughborough where yields are around 5%. However, when you account for the higher property prices, it might not be the best option available for investors.

“Durham could well be an up and coming investment location for the student sector. It’s typically not what I would consider a ‘hotspot’ for private landlords looking to increase their portfolio, but could be one to watch.”

Table of The Top 10 Performing Universities (per University League Tables 2018), including: Total Student Population, Average Four Bedroom Property Prices, and Average Rental Yields.

Rental Yield Rank

Location

University

League Table Rank

Student Population

Avg. Property Price

Avg. Rental Yield

1

Durham

Durham University

6

17,927

£151,465

5.22%

2

Warwick

University of Warwick

8

25,615

£338,220

5.11%

3

Loughborough

Loughborough University

10

16,500

£237,005

4.93%

4

Fife

University of St Andrews

3

8,790

£158,113

4.60%

5

Lancaster

Lancaster University

9

13,336

£148,268

4.46%

6

Oxford

University of Oxford

2

22,602

£497,603

4.12%

7

Cambridge

University of Cambridge

1

19,672

£465,588

3.64%

8

London

Imperial College London

5

14,700+

£717,217

4.53%

9

London

London School of Economics

4

8,895

£1,125,671

3.46%

10

London

University College London

7

38,000+

£1,125,671

3.46%

Landlords hamstrung by legal obstacles and cost of eviction

Landlords hamstrung by legal obstacles and cost of eviction

The online agency found costs of eviction reach nearly £2,000 and the process takes at least six months. If there are also rent arrears, landlords are then forced to pay further court fees to recoup these.

StudentTenant.com said more and more landlords are experiencing tenant arrears. Landlords hoping to remove tenants are waiting over four months to regain control of their property if the court eviction order is left undefended by the tenant; and much longer if it is.

Landlords are required to serve a section 21 notice to the tenant, giving two months’ notice of their intention to evict, but the tenant is not legally required to leave the property.

If the tenant does not leave the property, the landlord must apply to court for a possession order to get the property back. The eviction process can take between four to six months, depending on how busy the court is.

When a landlord is granted a possession order, the court will set a date for the tenant to leave the property which is usually between four and six weeks. Only a court bailiff can evict the tenant from the property.

In addition, if the tenant refuses to pay rent throughout the nine-month eviction process, the landlord could be owed thousands of pounds in rental arrears; landlords are also forced to foot the bill for renovations and fixing any damage to the property, if it has been left in a bad condition by the evicted tenants.

Danielle Cullen, managing director at StudentTenant.com, said reform is needed to protect landlords’ rights when it comes to eviction.

“Local councils are encouraging tenants to stay in the property until the eviction date, usually months into the future, so they are eligible for emergency housing. Tenants can only apply for it once they have been legally evicted, and if they leave any earlier, they are choosing to become homeless and cannot receive any support,” she said.

“Landlords and tenants are being really let down by the regulations in the sector. When it comes to removing non-paying tenants, the government needs to make changes to make it quicker to remove a tenant in this kind of situation.”

Cullen added: “There also needs to be more support for tenants who are being evicted through no fault of their own. They should be supported in finding a new property, to prevent them from having to stay until they are literally forced out.”

Chris Norris, head of policy, public affairs and research for the National Landlords Association, said its research shows around a third of landlords have experienced rent arrears in the past year, with the average amount owed by tenants standing at more than £2,000 – a rise of more than £400 over the last 12 months.

“Gaining possession of a property can be an expensive and stressful experience for everyone involved but the problem is often made worse by bad advice. Almost half (47%) of tenants who have  been served a section 21 eviction notice by their landlord say they have been told to ignore it by their local council or an advice agency such as Shelter or the Citizen’s Advice Bureau (CAB).

“We’ve always known that tenants receive this kind of advice and it’s a huge problem because it damages the confidence of landlords who work in the community to home those who aren’t able to access social housing. It also creates unnecessary strain on tenants, landlords, and the Courts Service,” he said.

“We hope that the Homelessness Reduction Act will help to prevent the number of cases progressing through the courts by giving tenants the support they need while incentivising the good work that landlords already do in communities across the country.”

Bob Young, chief executive at Fleet Mortgages, said his own personal experience as a landlord acted as a learning curve and that there are steps landlords can take to cut risks.

“I had a tenant in one of my buy-to-let properties many years ago who was trying to get social housing and was advised (off the record) by the council to stop paying rent and wait for an eviction notice,” he said.

“It cost me a sum of money but I learnt two very valuable lessons. Firstly, regardless of what the letting agent says, landlords should always carry out an inspection and they shouldn’t skimp on the work required to make the property more ‘let-able’ and therefore widen the net of potential tenants. Secondly, landlords should really look at the references the letting agents hand them and ask questions.

“In the end, I put the cost down to a learning experience and it has been invaluable to me. There are poor landlords but there are also poor tenants – hopefully they’ll find each other.”

Buy-to-let changes ‘will hit students’

Buy-to-let changes ‘will hit students’

It said the Bank of England’s tough new banking regulation rules for all buy-to-let lenders, will have a knock on effect on students.

The changes mean that lenders require buy-to-let landlords to prove that they can cover their mortgage payments by 145% if their mortgage rate went up to 5.5%, in many cases. The change is a significant jump from the previous 125% coverage required.

StudentTenant.com said this will force new landlords to increase rental prices to be able to afford the changes. From next month, existing rules which allow landlords to offset mortgage interest against tax will also be phased out, restricting the amount of mortgage interest landlords can offset against tax on property investments.

Danielle Cullen, managing director at StudentTenant.com, said: “These changes risk students in the UK being put on the verge of a severe rental crisis. Not only are we going to see a hike in rental costs for students to offset the change in buy-to-let mortgage rates, we’re also going to see a huge fall in mortgage applications as it’s just not a worthwhile investment anymore.”

She said government is gradually pricing out new student landlords from the rental market, causing huge problems with the very limited supply already seen in certain areas.

Cullen added: “Unfortunately, it’s another costly setback for students who will have no choice but to pay the increased rental costs. There’s already huge pressure on students to cover the costs of bills, pay rent and enjoy their university experience whilst studying, and another increase in rental costs is adding more pressure.

“With the hike in university fees, lower maintenance loans and now the impact of the buy-to-let mortgage changes, it’s no wonder students are questioning whether all the debt and stress is really worth paying for higher education.”