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As we head into 2023, let’s take a look at the crucial months for student landlords, what they need to be aware of, and what the market outlook is amidst this mix of surging demand and economic uncertainty.
The Student Let Market
The UK student let market has had huge growth over the last decade and amidst challenging times, has remained very strong. The pandemic in 2020 had a huge impact on every sector and industry, yet surprisingly the UK residential property market experienced a massive boost as homeowners looked for more outside space and homes with dedicated working space to work from home.
The student let market was initially affected as universities had to close and many students had to move to online classes. However, since the UK has started to open up again and regain a sense of normality, there has been a surge in demand for student accommodation. The market has seen students rush to secure a place for the start of their terms, with 2021 being a “record year for UCAS applicants, reaching almost 750,000” according to Savills.
Key Months and What Student Landlords Should be Aware of in 2023
With the new academic year starting in September and the record levels of demand for student accommodation, many students are already looking for a place to live months before their year starts. The first few months of the year can be the best time to find the right tenants in anticipation of the start of the academic year. Landlords should consider marketing their properties as early as December and January as this is one of the peak periods when students look for their ideal property.
The summer months are just as important as term time, as some students like to be moved in before the start of their terms. Even for those whose tenancies officially begin in September, landlords should ensure they have enough time to take care of all the administrative aspects. This includes taking deposits and references as well as ensuring their properties are ready to be tenanted. The properties will need to have had all necessary repairs completed and all health and safety regulations must be followed.
For landlords renting to five or more students, they already require an HMO (Houses in Multiple Occupation) license, however, some councils are expanding and changing their requirements whereby even non-HMO landlords require a license to let out their property depending on the area. These new licensing schemes are becoming increasingly common so that councils are able to regulate private landlords. Make sure to check which regulations apply to the areas applicable to you.
Student-Let Market Growth Investment Opportunities for 2023
With universities returning to normal modes of operation in 2022, a large number of them across the UK saw students racing to secure their accommodation. Many students were unable to find accommodation in close proximity to their university, which led to many of them having to rent properties in neighbouring areas. This is due to a combination of there still being a lack of supply of student accommodation and a continued increase in demand for higher education, despite the higher tuition fees and increased cost of living.
With travel having also opened up, international students are also back in full force, with the appeal of studying in the UK putting additional pressure on the supply of student accommodation.
Even prior to the pandemic, student lets were a highly popular investment for landlords due to the fact that there was an almost guaranteed demand for their properties (hence reducing the risk of void periods). Additionally, the rental yields were higher than what they would have achieved had they invested in a non-student, standard buy-to-let residential property.
A report by Paragon Bank showed how the top yielding university location was Swansea, achieving an average yield of 9.56%, followed by Hull with 8.6% and Plymouth at 8.41%. With the average non-student buy-to-let yield at around 3.63% in 2022, it’s no surprise that the student-let market has been, and continues to be a great investment for landlords.
It has also meant that there has been an increase in the development of purpose built student accommodation (PBSA), whereby some landlords are even investing in these schemes in addition to renting out their own private properties.
This market buoyancy highlights the resilience of the student let market, and as we go into 2023 it is likely to continue, especially considering many universities are having to create more of their own accommodation to keep up with the increasing demand. For private landlords, this goes to show that investing in properties with a student-let focus will continue to be an excellent investment in the immediate term as well as the long term. According to an article by Knight Frank, Unite, one of the leading listed providers of accommodation are forecasting rental growth of 4.5-5% in 2023, up from 3.5% in 2022.
2023 Challenges for the Student-Let Market
Whilst there are excellent investment opportunities amidst rising demand for student housing, the cost of living crisis combined with record high inflation and rising interest rates mean that the actual returns on student let investments may not be as high as they once were, but this depends on the area in which a property is located. Properties in student areas such as Manchester and Leeds benefit from higher yields, along with an economic boost from the improvement of the towns and cities.
For landlords in particular, inflation and rising interest rates are likely to be the main pinch points, especially for those who have managing agents looking after their property bringing about an extra cost. The rise in costs will be seen everywhere across the student let business from the cost of basic maintenance including cleaners and tradesmen, to the fees charged by agents. This reduces the potential profits for a landlord with a student let. Managing your own property portfolio with spreadsheets or student-let focused landlord software can be a way to cut costs and increase profits in 2023.
The rise in interest rates has also meant that mortgages have increased substantially for many landlords. Whilst those on fixed rates are “safe”, those with variable rates mortgages have seen their monthly mortgage payments increase substantially thus impacting their profits.
However, as with any investment, landlords should take a long term view, and with hopes of inflation and interest rates coming down to normal levels in the future along with an increasing demand for student accommodation, letting properties with a focus on the student market is likely to remain a strong investment as we go into 2023 and beyond.
Outlook on Student Rentals
The return to normality has created a huge increase in demand from both domestic and international students in the last 12-18 months. As we’ve seen, this sudden surge has had a direct impact on the student let market with many students not able to find accommodation, with most places being snapped up as soon as they become available. For private landlords, this is very encouraging as it is proof that the demand for student accommodation is not slowing down, regardless of which university town we look at.
Landlords should be aware of the regulatory changes in 2023, such as any new mandatory licenses they might need in order to rent out their properties. It’s also key to focus on the most important months of the year for student landlords including when students are looking to rent and the period of time before these tenancies begin. Doing so will increase your chances of filling your property and ensure you are on top of maintenance and any admin that must be completed before a tenancy.
Whilst there may be some challenges in 2023 such as high inflation and higher interest rates, the fact that universities are struggling to build enough accommodation to meet the needs of students is further proof that demand and rents will continue to increase thus presenting an excellent opportunity for private landlords both immediately and in the long run.
