Student Buy to Let Mortgages
Student Buy to Let Mortgages are very much the same as any other buy to let or investment mortgage where typically the amount you can borrow is determined by the actual or anticipated rental income received. In a majority of cases there will be multiple occupants in a student let and as such the lender’s rental income criteria will be assess as that of an HMO style accommodation. Many other aspects remain the same such as the ability to arrange it on an interest only basis.
What is the criteria for a student Buy to Let Mortgage?
The criteria for student Buy to Let Mortgages remains fairly constant as those for lender’s other forms of investment buy to let loans. A vast majority of student accommodation will be viewed as an HMO when rental assessment is taken into consideration and as such, the calculations to work out the maximum loan permitted will usually differ to that of a standard single dwelling assured shorthold tenancy (AST) Buy to Let.
Usually a minimum deposit or amount of equity of 25% will be required however, there may be a few specialist lenders who will consider 15%. In addition, the type of property may have a bearing including if it is a conversion or purpose built accommodation.
The usual standard checks such as credit and overall financial situation will also apply in all cases.
What deposit do I need for a student Buy to Let mortgage?
Due to the perceived additional risk to a lender for a buy to let mortgage compared to an owner occupier loan, the amount of deposit required will usually be that much greater. For a student buy to let mortgage expect to require a deposit, or minimum amount of equity of 25% however there may be more specialist lenders that will consider these types of mortgages with 15%.
Certainly, as you will tend to find right across the market irrelevant of what type of mortgage you require, the bigger deposit you have, or the greater level of equity, the lower the interest rate you will likely have available.
How much can I borrow on a student buy to let property?
Calculating how much you can borrow for a student buy to let is predominantly done by using the level of rentable income received or expected for the property. As many student accommodations are with multiple occupants and in turn more than one tenancy agreement in place, the rent to loan ratio tends to be adopted from a lenders HMO criteria. Of course this is not necessarily always the case and the calculations below, although not a set rule for all lenders, will serve as a good indicator of what to expect. You may also notice a slight variation for higher rate taxpayers that is also now playing a relevance since the new tax rules have been introduced.
Single occupancy – 125% at 5.5%
Single occupancy higher rate tax payer – 145% at 5.5%
Multiple occupancy (HMO) – 170% @ 5.5%
As already mentioned, these calculations are given as nothing more than to provide a guide. As all lenders make assessments in a different way, with other influencing factors such as the type of scheme you apply for i.e. a 5 year fixed may enable more borrow to be agreed or indeed if you are raising any additional capital with a remortgage on the subject property, it is certainly advisable to do your research or use a specialist broker such as ourselves to do this for you.
Advantages of Student Buy to Let Properties
When assessing the validity of a student buy to let, as with any other investment, you should always look at the pros and cons. Here are a few of the advantages:
- A student let can provide a good rental yield. Many are done on a multiple occupancy basis and in turn can provide a higher rental return than a single assured shorthold tenancy.
- You may be able to get a guarantor for the students rent that gives greater security in knowing the rent will be paid.
- Purpose built student accommodation can be very expensive and having an alternative for students gives a good source of possible tenants.
- Student accommodation is typically a long term need as further education increases with students wanting good value accommodation near to their place of study whilst living away from home.
- It can be a very good way of financially supporting your own children through their time at university.
- Students can be less demanding than a typical tenant and although this does not diminish your responsibilities as a landlord it does perhaps mean you will not be troubled with more minor issues.
disadvantages of student buy to let properties
As with any investment that offers any positives it is always prudent to offset these against any disadvantages. Here are a few to consider for student lets:
- Although the same rule cannot be applied to all, some students may not have the same due care and attention to their surroundings than a single family occupancy, as the housing is not considered such a long term need as it may be with a family looking to settle in an area.
- As with any rental property there is no guarantee that you will consistently have the property fully occupied so do budget for any potential rental voids.
- Do expect to have competition. In areas of demand for such a specific need other investors will also be looking to benefit including any accommodation offered by universities.
- There is no guarantee of future property prices and the value of your asset can go down as well as up.
- You will have the ongoing responsibilities of a landlord that may also include legal responsibilities such as housing health and safety regulations.
How many students can occupy a property?
To calculate how many students can occupy a property is perhaps more in regard to the legal implications this may have or perhaps simply how much time and cost you may wish to invest.
For the latter point here, the more students that occupy the property the greater degree of supervision and management that will likely be required. It may also be that you will have a higher degree of turnover of tenants.
One legal aspect is if the property will be deemed as an HMO. Typically, if you let the property to 4 or less students it will not come under the classification of a house of multiple occupancy. If 5 or above then HMO regulations will likely be imposed and will then probably need licencing by the local authority. To do so will require the landlord to fulfil certain fire and accommodation standards. These can all result in extra costs. The number of students may also have an influence over which lenders are available to you with some imposing tighter restrictions than others.
I have bad credit, can I get a student buy to let mortgage?
Having a history of bad credit can have an influence over any lenders decision regardless of it being for a residential owner occupier mortgage or a more specialist student buy to let. With the student buy to let sector being a much more specialist area this does in turn give much less choice. Undoubtedly this therefore means that if you have a history of bad credit things may be that little more difficult.
As all lenders have different views and criteria it may still be possible to obtain a student buy to let mortgage with a history of bad credit however, in our opinion, it is wise to use the services of a specialist bad credit mortgage broker with an extensive knowledge of the student buy to let market.
Are student buy to let mortgages more expensive?
With the very nature of student buy to let mortgages being a more niche area this does result in less lenders being available that inevitably affects competition. With this in mind the rates that are available can be a little less attractive than those of their standard buy to let counterparts.
However, albeit this may be true, a student buy to let as with any investment has to be looked upon as a stand-alone proposition and therefore you still need to ensure the scheme you are arranging for this specific purpose is the most suitable to your own individual requirements.
Student buy to let mortgage rates
Student buy to let mortgage rates will either be offered by a lender under the specific branding of student buy to lets or simply from their portfolio of buy to let products. The product or rate available could also be determined by the type of occupancy such as, if it is to be occupied by 5 or more students, the rate applicable will likely be from a lenders house of multiple occupancy (HMO) range.
Regardless of the way a lender brands their products, it will invariably be the case that the bigger deposit you have or the greater degree of equity, the better the interest rate you will be able to obtain.
The choices will usually still provide the standard options most would expect such as fixed or variable rates with the latter perhaps sometimes giving slight variations where some may be linked to LIBOR instead of the lenders standard rate or Bank of England base rate.
Student buy to let mortgage lenders
The very nature of student buy to let mortgages means that the number of lenders that will consider this type of lending is much fewer than that of a standard buy to let. With this in mind one would be forgiven for thinking that it will therefore be easier to source a lender should a student buy to let mortgage be required. With the differing criteria that each impose together with the vast array of varying products on offer this is certainly not necessarily the case.
You will still find a few of the bigger, more recognised names in this field but in general it will be the smaller building societies and specialist lenders that are available.
Finding the right lender can be a daunting prospect however do your research wisely and thoroughly or use a specialist mortgage broker with an extensive knowledge in this sector and hopefully the journey will be a more beneficial experience.
Mortgage advice for student buy to let mortgages
Making sure your investment provides you the best return is paramount and should you require to borrow funds via the means of a student buy to let mortgage you need to ensure the scheme you arrange is the most suitable to you.
Although the student buy to let market is relatively small in comparison to the general buy to let sector, with each and every lender applying its own set of rules and criteria it can still be a difficult task finding a lender that can assist let alone the right product. Using a specialist mortgage broker can therefore pay dividends when looking into your options as they will be able to do the hard work on your behalf. Here at Just Mortgage Brokers we understand this and have our specialist student buy to let advisers on hand to assist you with your enquiry.