Why student landlords should head to small university towns for yields

Steve Lumley·10 October 2022·6 min read
Why student landlords should head to small university towns for yields

Student landlords who are wondering where the best locations for achieving the strongest yields should head to small university towns.

That’s the verdict from Paragon Bank which says that the best yields can typically be found in smaller single university cities and towns.

They have analysed mortgage applications for rental homes in popular student postcodes and found landlords offering student accommodation in a town or city with just one university are achieving the best returns.

Researchers found that of the country’s top 10 yielding university cities and towns, eight had just one university - and this extends to 14 in the top 20 yielding locations.

Student landlords wanting the best returns

The best university town or city for student landlords wanting the best returns is Derby where yields for landlords average 8.67% and where the main establishment is the University of Derby with 21,285 students.

The next best destination is Pontypridd which is home to the University of South Wales where yields, on average, are 8.31%.

Researchers found that the average price of property there is also the lowest in the list of top 10 cities, which makes it a cheaper option for those landlords wanting to buy.

Next is Hull which is another city with just one university and where property costs, on average, £172,429.

The yields in Hull for student accommodation are 8.12%, though landlords tend to generate a lower level of annual average rental income.

Student landlords wanting the best yields

Of the remaining top 10 locations for student landlords wanting the best yields, just two, Coventry Liverpool, have more than one university.

Other destinations in the top 10 include Lincoln, Salford, Plymouth, Durham and Worcester.

The managing director of Paragon Bank, Richard Rowntree, said: “Although cities like London, Manchester and Birmingham have large student populations, they’re not necessarily the best location when generating yield in the student BTL market.

“This is because they are more likely to have purpose-built student accommodation and high levels of competition, whereas smaller towns and cities have less competition for large-scale institutional investment.”

He highlighted that when landlords are looking for the best yielding student locations, they also need to consider property prices as the top five locations on their list have homes at well below the national average of £278,000.

Private rented sectors that are serving the student market

Also, another common trend highlighted in the research is that the top 10 locations tend to have smaller private rented sectors that are serving the student market.

Simon Thompson, the managing director of Accommodation for Students, said: “This is an interesting survey and highlights something that many student landlords may not consider.

“Having just one university and a small PRS for meeting the needs of students will deliver better yields than most other university towns or cities because landlords are meeting a demand.

“And, landlords also need to appreciate, that they will need to offer a quality student property for letting to ensure they enjoy those high yields.”

Scotland imposes a rent freeze on its PRS

Meanwhile, Scotland has imposed a rent freeze on private and public rented properties in a bid to help people who are struggling with rising bills.

First Minister Nicola Sturgeon points to the cost-of-living crisis as a humanitarian emergency that could cost lives.

Now, emergency legislation to impose the rent freeze and to ban evictions during winter has been imposed until the end of March next year.

The rent freeze begins immediately but Scottish landlords say properties will be removed from the market as a result.

Landlords in Scotland say they will remove their vacant properties

The chief executive of the Scottish Association of Landlords (SAL), John Blackwood, says he has been inundated by landlords in Scotland saying they will remove their vacant properties from the market.

He said: “The Scottish government has chosen to penalise people who have provided the homes that politicians have failed to provide for decades.

“Once again, the government fails to grasp the reality of Scotland’s housing crisis and has chosen the easy option of attacking landlords for political reasons.”

He says that the move will not only reduce housing supply but will also cause more hardship for tenants.

Students in Scotland who cannot find anywhere to live

Mr Blackwood also points to the growing issue of students in Scotland who cannot find anywhere to live this year and other tenants struggling to find accommodation.

One of the organisations that questioned the move, Goodlord's Tom Mundy said: “This rent freeze represents a potentially seismic new frontier in UK lettings policy.

"While we understand the need to support tenants, introducing rent controls could mark the end of the private rental sector as we know it by stripping away the central incentive which encourages people to invest in buy-to-let properties.

"There's a major risk that this freeze will push landlords out of the PRS market at a time when pressure on rental stocks is particularly acute.

"This will squeeze the whole lettings market and create bigger headaches for the Scottish government later down the line."