A parents' guide to buy-to-let student property
Before the new academic year gets under way, it's time to make a move, advises Chiara Cavaglieri
Sunday 06 June 2010
As university students in the UK get exams out of the way, some will have at least half an eye on their accommodation for next year. Many will be turning to mum and dad for a helping hand: but for parents who can, investing in property for your child may be the best bet. However, with only a few months until the new academic year gets under way, now is the time to make a move.
"As young adults move away to university or enter their second year, many parents use the opportunity to purchase a second property, safe in the knowledge that they have tenants lined up to pay the rent. For those who can afford it, it is a way potentially to profit from an otherwise expensive experience," says Simon Thompson, co-founder and director of Accommodation for Students (Accommodationforstudents.com).
Student housing is a fairly resilient venture and there are considerable benefits over other forms of property investment. Universities across the UK are at, or near, capacity and need to find accommodation. Moreover, many professional landlords are hesitant to rent to students, which can mean that in some areas there is a shortage of student properties. Recent figures show that this lack of supply has caused rents for student property to increase by 19 per cent over the past five years.
In high-demand areas such as Cambridge and Oxford, you can expect higher rental incomes all year round, although some student lets may be empty during the summer months.
The latest figures from Accommodation for Students show London is the priciest place for students, with an average weekly rent of £104.13. Guildford is the more surprising entry in second place at £87.86 per week, while less fashionable towns such as Stoke-on-Trent, Hull, Middlesbrough, Crewe, Pontypridd and Stockton have average weekly rents of under £50.
"All the rules of a good buy-to-let property apply; centrally located with good transport links, access to green space and close to local amenities such as shops, bars and restaurants," says George Franks, sales director of estate agents Douglas & Gordon.
Financing a purchase of this nature, however, may not prove to be so simple. During the recession we saw lenders pulling out of the buy-to-let market, and the number of deals plummeted. Another potential barrier is that although buy-to-let properties are not usually regulated by the Financial Services Authority (FSA), when a property is let to an immediate family member it becomes a regulated buy-to-let mortgage.
"This narrows your options quite quickly because some lenders simply will not consider a regulated buy-to-let," says David Hollingworth, from broker London & Country.
In an already difficult market, parents without an impressive deposit may find they have few options. Principality Building Society currently offers a two-year tracker for buy-to-lets of this nature at 3.14 per cent above base rate, with a 3.50 per cent fee, and available up to 60 per cent loan-to-value (LTV). For those with only a 25 per cent deposit, NatWest offers a two-year tracker at 4.49 per cent above base rate up to 75 per cent LTV, with a £1,999 fee. Lenders will also insist that your rental income can cover the mortgage, and then some.
On top of financing obstacles, there are significant tax and legal implications when renting a property to students. First, landlords will have to pay income tax on the revenue generated from rent, minus any relevant expenses. You may also be taxed on any profits made when it comes to selling the property. Capital gains tax (CGT) is widely expected to be increased to the level of income tax, up to 40 or 50 per cent for higher tax payers, in the coalition government's emergency Budget on 22 June. However, experts say that few parents will be deterred by the proposed increase.
But there are a multitude of more practical requirements that can quickly add up, including gas and electricity safety certificates, landlords' insurance, and the houses in multiple occupation licence, which is compulsory for properties at least three storeys high and with at least five tenants. Also, if you don't want the trouble of chasing rent, and the general maintenance of the property, you may have to fork out for a management company to do this for you, which will take a large chunk of your income.
But, despite the headaches, there are significant tax breaks if you're willing to put the property in your child's name and they plan on living in the property throughout university.
This way, it becomes your child's principal private residence, so there is no CGT to pay, and it may not be included as part of your estate for inheritance tax (IHT) purposes. As an added benefit, the rent-a-room scheme allows your child to rent out a room and earn up to £4,250 per year tax-free, as long as communal spaces such as kitchen and bathroom are shared.
You may need to act as a guarantor to the loan and, again, finding more than a handful of willing lenders may prove hard. You'll also have to prove you're able to cover both the mortgage you're guaranteeing as well as your own. Bath Building Society offers a deal aimed at this market called the "Buy for Uni" mortgage, allowing for up to 100 per cent of the purchase price to be advanced, subject to a maximum of £250,000, though a collateral charge is required against the parents' house for anything above 80 per cent LTV.
"The mortgage is in the child's name and the lending is based on the rental income, although they may be able to take parental income into account as well if there is a shortfall. The pay rate is at standard variable rate [SVR], which is currently 5.10 per cent, and there would be a 0.5 per cent fee," says Mr Hollingworth.
EXPERT VIEW: David Hollingworth, London & Country
"You should take a long-term view of a proposed student let – property doesn't work as a short-term investment, as it costs a lot to get in and then to get out. So it's good to buy with your kids at uni in mind. But remember, once the three years are up, you have an ongoing investment on your hands that will need renting out and maintaining, and students can be quite hard on rental property."
Independent Partners: Get fee-free expert mortgage advice and find the right mortgage deal for you.
- 1 Nigel Farage: Me vs Russell Brand on Question Time – he's got the chest hair but where are his ideas?
- 2 Harry Potter fans can apply to the Hogwarts-inspired College of Wizardry
- 3 Jessica Chambers: 19-year-old woman 'doused with lighter fluid and burned alive' in the US
- 4 Russell Brand calls Nigel Farage 'poundshop Enoch Powell' in BBC Question Time debate
- 5 Orange Wednesdays are no more
Disgruntled RBS worker writes hilarious open letter to Russell Brand after anti-capitalist publicity stunt leaves him hungry
Nigel Farage defends Kerry Smith 'ch***y' comment: 'If you are going for a Chinese, what do you say you’re going for?'
Nigel Farage's approval rating hits 'record low' as popularity suffers in wake of Ukip sex scandal
Pakistan school attack live: Taliban kill at least 132 children in 'horrifying' massacre
Sony hack: Angelina Jolie branded 'seriously out of her mind' in further embarrassing leaked email saga
Panic Saturday: 13 million Britons spend £1.2bn – while 13 million others across the country live in poverty unable to afford food
iJobs Money & Business
£20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...
£20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...
£20000 - £25000 per annum + OTE £35000: SThree: SThree are a global FTSE 250 b...
£20000 - £25000 per annum + OTE £35K - £45K: SThree: SThree Group have been we...
Day In a Page
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens