How to get a buy to let mortgage on a student property
You must seek the right mortgage advice if you want a BTL property to rent to students. Although student BTL mortgages don’t differ from other investment property agreements, finding the right lender may be more challenging due to the additional considerations.
Getting a favourable deal on a student property buy-to-let mortgage is possible. These mortgage brokers are available; you can find all the information below.
Contact our mortgage advice bureau today. We have a few mortgage providers lending student properties and a buy-to-let mortgage.
What is a student mortgage buy-to-let?
The student buy-to-let mortgage allows you to borrow money to purchase a property you plan to rent to students. If you’re looking to rent out your property to students, there are two options: large houses that you can restructure to maximise returns or self-contained flats or units built for purpose.
Our mortgage specialists are familiar with these mortgages daily and can give you correct mortgage advice.
Are they worth the investment?
While they have their benefits, they may not be for everyone. This is true whether you are a parent looking to provide a roof over your child’s heads while they go to college independently or a landlord looking to invest in this lucrative area of the property market for a rental income.
For parents
Many parents find investing in student housing buy-to-let appealing if their child is about to leave home for university. A mortgage to buy a student property can help you contribute financially while your child attends university. It will also allow you to save money on student rental fees.
For landlords
Parents are not the only ones who take out student mortgages. It is possible to attract thousands of pounds in rent. This investment can be excellent for anyone with the capital needed. Professional landlords may find it a good investment.
This can be a great option if you want to use an inheritance or extra cash. It can also help you save for retirement.
There are advantages and disadvantages to investing in student property
A student buy-to-let mortgage is a great option.
Advantages
- It is not uncommon for student rentals to be extremely expensive. This can make it an excellent option for parents who want to help their children through university financially.
- No matter if you are a parent, long-term investments (i.e. If you plan to rent the property out to other tenants after your child graduates and moves on, this is a good option. House prices tend to rise over the long term, but it is not always clear what the future holds for the property market.
- While more purpose-built student accommodations have been popping up in recent years, they can be quite expensive. The “traditional” student flatlet or house is still the most preferred option.
- Students are generally not fussy about their property’s condition and don’t usually have any concerns about it. You don’t need to worry about minor issues or buying new furniture.
- As a landlord, renting out student buy-to-let properties to multiple tenants can provide substantial income security. You can ask each tenant to have a guarantee if one or more students fall behind on rent. This will make it less likely that you will default on your mortgage repayments.
These are just a few of the possible disadvantages. However, they don’t necessarily apply to you. A mortgage broker can help you avoid these pitfalls.
Student BTL has potential drawbacks.
- A student buy-to-let is a good option if you are looking for a short-term investment. You could lose money because no one can predict whether house prices will rise, fall, or stay the same in the short term.
- Holidays can also cause downtime. Many landlords avoid this problem by imposing a 12-month rental agreement. The rental tenure is also short, but that should not be surprising considering student lettings.
- Students are known for their party lifestyles. You may need to deal with noise complaints or find that tenants have damaged your property. This is why you should always consider this when calculating a deposit.
- A Housing Health & Safety Rating, Energy Performance Certificate and an annual gas check certificate may be required for the property. This could indicate that repairs or improvements are necessary.
Can I get a student mortgage buy-to-let?
Lenders use the following criteria to evaluate student buy-to-let mortgages:
- Rental income Does your rental income project pay the mortgage by at minimum 125%? Lenders might request that it be extended to higher amounts, while others may limit lending to those with a personal income below £25K.
- Minimum deposit amount: Higher deposit requirements may be required for mortgages. For more information, please refer to the next section.
- Credit history Clear credit is always a bonus. However, specialist mortgage lenders can help customers with bad credit or other credit issues.
- Property type Any type of property considered ‘non-standard’ (e.g. Student HMOs can make it more challenging to obtain a mortgage and may require a specialist lender.
- Legal requirements: If your student accommodation meets the criteria for this type of property, you might need to apply for an HMO license.
Buy-to-let mortgages can be used for student properties, holiday homes, or other purposes. They work the same as a standard investment property mortgage. The provider will lend you money to purchase a property, with the loan secured against the property.
While it is the same concept as residential mortgages, there are some things you need to know before you invest in student accommodation. Lenders perceive buy-to-let mortgages as being a greater risk than residential mortgages. As such, mortgage lenders expect to receive compensation.
What amount of deposit are you able to put down?
Most lenders will expect you to have a larger deposit to be approved. This should be at least 25%. However, a few specialist lenders may be able to consider loans up to 85%. BTL interest rates are generally higher than residential mortgages. However, the greater your deposit, the better the interest rates you will receive. Those with deposits over 40% will likely get the best deals. There are many great deals if you do your research and contact an expert, buy-to-let broker.
What is the maximum amount I can borrow?
The property’s rental income will determine it. This is usually determined by the valuer, who evaluates the property at the time of application. It will also be based upon other rental yields in the area for similar properties.
These calculations must satisfy the PRA interest coverage ratios. Rent needs to cover 125% (@ 5.5%) for taxpayers with higher rates. Some lenders may add stress testing to this equation for higher-risk lending, such as HMOs or student lets. This could require 170-180% coverage.
Lenders specialise in different types of tenants and will lend different amounts to each. The experts handle these applications we work with daily, so send us an enquiry and get the right advice!
Stamp duty is there for student accommodation?
Stamp duty will be added to standard tax rates when you buy a second or buy-to-let property. You will have to pay a 3% stamp duty for your buy-to-let investment. However, you can get a maximum 20% tax credit on your mortgage interest.
What rent amount should I charge?
Lenders will want to know how much you can rent rather than your salary when determining your eligibility for a student BTL loan. To prove your ability to afford a student buy-to-let mortgage, it is essential to prepare and perform the necessary calculations. It is vital to ensure that your rent forecast will be sufficient to cover your mortgage payments.
Prices for rooms and property will vary depending on how many students live there. For example, a week of £200 might be a great deal in London but a lot in the middle lands.
Is there a better place to buy student property in the UK than the UK?
The UK is home to some of the most prestigious universities around the globe, so student accommodation remains highly sought-after, despite initial concerns about Brexit. There is a solid case to be made for students buying to let flats or houses in high-capital growth areas like London, Brighton, Southampton or other regions of the South East that are highly in demand.
Over the last few years, property values have risen in cities like Liverpool, Leeds, Manchester and Nottingham. This has been primarily due to landlords from the South selling off unprofitable BTLs and moving their capital north. The top three cities for student buy-to-let properties were at the end of 2017: Nottingham, Bristol and Leeds.
As with any buy-to-let investment, it is crucial to fully understand the market and the region you are looking to invest in. Students like to live in cities or towns dominated and populated by students so that they can be close to their friends.
It is not always the best option to live near campus in some areas. In others, living close to the city’s centre may be the norm. Do your research and weigh the property prices to determine the most profitable location to invest in.
What are the legal requirements for owning a student BTL
You should consider all the benefits and drawbacks of a buy-to-let student mortgage. If a property is rented to more than five tenants, it will be regarded as a house in multiple occupancies (HMO). In this case, you will need to get a license from your local authority. This applies to properties with three or more stories.
An HMO license is only valid for five years. Initial costs depend on where you live, the length of your license, and the property’s size. For example, a 1-year student property license in Oxford will cost £420 and £315 each year for renewals of 5-year licenses (subject to all eligibility criteria).
FAQ
Is it possible to use your personal income to pay for rental shortfalls
This is possible with some lenders through “top-slicing”. It’s basically where lenders allow borrowers to “cover rental shortfalls” using their income, if possible. If your rental income is insufficient to pay a loan of 100k, but you need 120k, then you will need to prove that you have enough personal income.
What if I have poor credit?
Lenders may not approve a mortgage application if you have a poor credit history. This can make it even more difficult for lenders to approve student BTLs and BTLs generally.
If you find yourself in financial difficulties, you will likely prioritise your primary residence over the second property and be more likely to default on the payments for the latter.
Some lenders may be flexible and offer people with bad credit histories reasonable rates. Lenders may ask you to deposit a higher amount together to instil more confidence. However, it all depends on how severe and recent your bad credit history has been.
Can a student BTL qualify for a joint mortgage?
Parents can help their student offspring with a joint mortgage to a BTL. However, this is less common with adding a 3% stamp duty for second homes. You could give your child cash or have the parents take out a mortgage as the guarantor.
A joint mortgage with a sole title arrangement is another option. In this arrangement, parents are named on mortgages and are jointly liable for the repayments. This arrangement doesn’t give parents ownership rights, and they are not responsible for capital gains tax or additional stamp study.
Talk to a student expert in buy-to-let today
Knowing which mortgage lenders are available for student buy-to-let is difficult.
The risk of getting rejected, offered low rates, or stuck with a mortgage that is not right for you comes with choosing the wrong lender. The good news is that there is help!
Our network includes expert brokers who specialise in student buy-to-let. They can provide you with tailored advice regarding your application, ensure you are paired with the right lender and assist you with any paperwork.