Student property offers greater yields

Landlords who hold student property in their portfolio are making healthier returns than those in the wider buy-to-let market.

Research from Paragon, the specialist buy-to-let lender, has revealed that landlords letting property to students achieve yields that are, on average, over 25% better than those available in the general market. The figures showed that portfolios that include student property generated an average gross yield of 7% compared to 5.6% for those without student properties.

Where student property made up more than half of a landlord’s portfolio, the average yield rose to 8.6%.

Nigel Terrington, Paragon Group’s chief executive, said: ‘Strong tenant demand in the student market is driving yields in that sector. If landlords select the right type of property in the right location, the returns from the student market can be extremely healthy.’

With the new academic year about to begin, thousands of students will be heading off to university. Currently 43% of school leavers go onto higher education, but the Government’s aim is to increase this to 50% by 2010. Students account for 12% of lettings in the buy-to-let market.

According to Paragon Research, towns that are home to modern, expanding universities are experiencing strong tenant demand as the local lettings market tries to keep pace with the growing number of students.

Middlesborough, Chester, Huddersfield, Leicester, Hatfield, Ipswich and Canterbury are all experiencing strong growth in student tenant demand, in addition to the traditional redbrick university cities of Sheffield, York, Oxford and Bath.

And it appears that the traditional image of student tenants is out of date. Student landlords typically have lower void periods than the wider buy-to-let market, with the benefit of an annual let (property still has to be paid for even during summer) and frequently a parental guarantee. Rental income per property also tends to be higher as landlords typically let to students on a per-room basis.

Terrington added: ‘Despite the ‘Young Ones’ image of students being rowdy and destructive tenants, the reality of modern student lets is quite different. The days of grants have long gone and students are more focused to make the most of their student debt-financed opportunities.

‘Whilst there will always be a social element to university, students are looking after the property better to avoid losing deposits and incurring costs for repairs and replacements. A significant element in this is that the quality of student sector property stock is in considerably better condition than it was in the past due to a combination of increased investment by landlords and stronger regulation.’

He concluded: ‘Most student landlords will have let their property for the following academic year by early spring due to the strong level of tenant demand and the competition between students for the better quality properties is fierce. This gives pricing power to the landlord.’