Using commercial mortgages to invest in student property
Students accommodation can provide good rental yields and capital growth returns. Commercial mortgages are available to purchase homes suitable for students.
Britain’s large towns and cities have large student populations and in many areas there will be an increase in the number of students attending colleges and universities in the next academic year. There is a high demand for student accommodation.
Compared to other residential accommodation, the UK student property market has been performing better every year since 2011. Rent yields are high and there are low vacancies.
Houses of multiple occupancy
Most individual landlords invest in houses for multiple occupancy or HMOs. A typical student house is one where each student has his or her own bedroom but shares bathroom, kitchen and lounge areas. Often, these are older houses that are too big for a small family. An HMO will generally receive higher combined rents from all the students than if a single tenant occupied the house.
A landlord can choose to be involved in the management of the property or can use an agency to manage all aspects of the house, advertising the property, finding the tenants, issuing lease documents, carrying out routine maintenance and collecting the rents.
Financing student accommodation
If an investor has a high financial status, they can purchase purpose-built student accommodation with a commercial mortgage. For HMOs, investors may be able to get a buy-to-let mortgage, but there are specific HMO commercial mortgages available. These may have conditions about the type of tenancy agreements that landlords must use.
To apply for a commercial mortgage, you will need a deposit and a high credit score, though if an applicant has had some minor credit issues in the past they may still get a loan. You do not need previous experience as a landlord, though this can help.
An HMO mortgage is available for houses of up to 20 rooms. If the property has not got an HMO licence a loan can still be advanced, but landlords will need a licence from the local authority before accepting tenants.
Commercial mortgages are available for buildings that have self-contained flats or bedsits which have not been built specifically for students, but landlords need to make sure that the conditions of the mortgage allow student occupation.
Another type of accommodation suitable for students is semi-commercial property. These include shops with flats above them where students can share accommodation or be the sole occupier. A single commercial mortgage can cover the purchase of both the residential and commercial portions of the property.
The maximum loan an investor is likely to get is 85% of the value of the property, though the amount offered could be as low as 65%. Some high loan to value mortgages will be only available for experienced landlords.
Financing student accommodation may appear complex, but Ascot Mortgages can arrange a commercial mortgage and talk you through everything you need to know about the matter.