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Category: prs
Specialist lender, Paragon Bank, has unveiled analysis that shows growing yields in university locations, which could offer opportunity to landlord investors.
The data reveals a promising uptrend in buy to let investments catering to students, particularly in the smaller university towns and cities across the UK.
Given the changing buy to let investment environment, maximising yields has become ever more important to the landlord community.
Where some investors feel confident to diversify into semi-commercial or commercial property, in pursuit of higher yields, landlords with fewer properties may find the prospect of that a little out of reach. However, segueing into student accommodation could offer a much more viable diversification route.
What does the data show on yields?
Paragon conducted an in-depth study of mortgage applications within popular student-centric areas, uncovering a steady rise in yields for landlords leasing to students.
The average yield, which stood at 5.63 percent in September 2020, climbed to 6.66 percent in August 2023, representing an increase of just over 18%.
This trend is especially pronounced in the smaller university towns and cities, where investment returns are most lucrative.
The stand-out location amongst the data is Stoke-on-Trent, in the West Midlands of England, which came first in a top ten ranking for student rental yields. Second was the Welsh city of Swansea, then Crewe in the North West of England.
The full breakdown is as follows:
# | Location | Average rental income | Average valuation | Rental yield | Universities |
1 | Stoke-on-Trent | £13,730 | £145,813 | 9.42% | Staffordshire University |
2 | Swansea | £18,695 | £202,750 | 9.22% | Swansea University |
3 | Crewe | £15,154 | £170,722 | 8.88% | University of Buckingham - Crewe Campus |
4 | Gloucester | £25,656 | £305,333 | 8.40% | University of Gloucestershire |
5 | Aberdeen | £11,349 | £136,895 | 8.29% | University of Aberdeen |
6 | Hull | £10,146 | £125,526 | 8.08% | University of Hull |
7 | Glasgow | £17,109 | £211,729 | 8.08% | University of Glasgow |
8 | Plymouth | £24,335 | £308,515 | 7.89% | University of Plymouth |
9 | Salford | £22,354 | £284,450 | 7.86% | University of Salford |
10 | York | £32,522 | £422,409 | 7.70% | The University of York |
Population size stands out in the data
When overlaying the population size of the locations which stood out in this data, Glasgow was the only place that exceeded half a million people, according to data from the Office for National Statistics (ONS) and local government offices.
Stoke-on-Trent has a population of 258,400 (ONS unitary authority population) and Swansea 238,500 (ONS unitary authority population). Crewe, by contrast, has a much lower population of 55,300 (ONS parish population).
At the highest populated end of the scale, within these ten locations, Glasgow City Council cites Glasgow’s population as an estimated 620,700.
Richard Rowntree, Mortgages Managing Director for Paragon Bank said:
Our latest analysis highlights how yields achieved by landlords serving the student market have consistently grown over the past few years. This coincides with rising tenant demand seen across the private rented sector and particularly in the student market, driven by record-high numbers of university applications going through UCAS.
“We continue to see that it is often properties found in smaller towns and cities that deliver the best returns for landlords. Despite not typically attracting the largest student populations, these locations can benefit from property that is more affordable to purchase, whilst having less competition from purpose-built student accommodation, with the highest concentrations of large developments usually found in major cities like London, Birmingham and Manchester.
Considering investing in student accommodation?
If you are interested in investing in student accommodation and want to raise the capital to do so, the product most suited to this is a House of Multiple Occupation / HMO mortgage.
Property size, measured by the number of bedrooms, and set-up can have a strong influence on the mortgage interest rate you can secure.
For properties of no more than 6 bedrooms, where there are no need for special modifications (that would stop the property being sold on as a standard family home), you may find that you can secure a rate with some high street lenders.
Larger HMO properties, of more than 6 bedrooms, tend to require a mortgage from a specialist lender, which means mortgage interest rates are typically higher. However, more bedrooms mean more incoming rents so calculating return on investment and yields is important.
There is a lot to weigh-up when considering what sort of property to invest in, including both pros and cons. For further reading on this subject, take a look at our guides:
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If you are ready to start an application, simply contact our specialist buy to let mortgage advisors by calling, or sending us your details.
