Buy to let mortgage on a student property


About Martin Alexander

Martin has been a mortgage advisor for over 15 years. Check to see if you qualify or give us a call on 0800 195 0490. mortgage reviews

Investment in student buy to let is booming and it’s no surprise. With the Bank of England base rate still relatively low, there’s some great buy to let deals available. Whilst savings in the bank are gaining paltry returns, buy to let investors are cashing in and some are earning over a 10% yield by letting to students.

Rent from a property can provide a long term income stream. Many landlords decide on an HMO model where a number of students share a single property. Rather than charging rent for the entire property, students pay rent for each room, which can soon add up.

Like all property investment, it all starts with getting the right mortgage. After all, you’re in this to make money! With thousands of buy to let deals to choose from, how can you be sure you’re getting the very best mortgage possible? Well, now you can.

Our advisors specialise in student buy to let mortgages and have helped many landlords across the country to secure great deals. With so many different types of mortgages available, our specialists will find the exact mortgage you need. This article will explain everything in more detail and once you’re ready, make an enquiry and an advisor will help you from start to finish.

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What is a student buy to let mortgage?

A student buy to let mortgage is a loan used to purchase a property which is then let to students. Student buy to let mortgages are popular with landlords aiming to maximise their rental income. Landlords are able to do this as a student home is typically set up as a house in multiple occupation (HMO).

There is a wide spectrum of mortgage types to choose from when investing in student accommodation. For instance, you may want to purchase a regular property which you can then convert into an HMO. This can often involve restricting the internal aspect of the property so that you can maximise the number of rooms you can offer to students. On the other hand, you may want to purchase purpose-built accommodation which is already suited for students such as flats.

Depending on the type of student property you’re purchasing, you may be better suited to a particular type of buy to let mortgage. This is where landlords can often go wrong as they’ll take out a mortgage that isn’t the most suitable.

How to get a buy to let mortgage for a student property

You’ll first need to establish your budget and what you’ll be able to borrow. This will then give you an idea of the type of student property you’ll be able to purchase.

Furthermore, many lenders insist that student buy to let is explored by existing landlords and not first-time landlords. This is because student property investment isn’t something to be taken lightly and is something experienced landlords will usually move on to once they’ve conquered regular buy to let.

The saying often goes, don’t walk before you can crawl and it’s quite true under circumstances such as these. That doesn’t mean to say that there aren’t lenders that won’t approve first-time landlords for student buy to let, but it’s important to know.

How much deposit will I need?

As with most mortgages, you’ll need a deposit to purchase a student property. Most lenders will want a deposit of at least 25%. It’s often advised to use a higher deposit such as 40% to unlock the best deals. In other words, the more deposit you can put down, the better interest rates you’ll be offered.

There are lenders that may offer mortgages with less than a 25% deposit. Nevertheless, it’s likely you’ll have to pay higher interest rates along with large lender fees.

Mortgage survey for a student HMO

It’s also a good idea to have extra funds available if things don’t go to plan. Many deals can fall through at the mortgage survey stage. Surveyors can value the property purely on bricks and mortar which often results in a lower valuation than expected. This is likely to happen if you’ve applied with an unsuitable lender.

Lenders who understand that you’re purchasing a student property, especially if it’s an HMO, should value the property based on the rental amount it can achieve. This is critical in ensuring you get the full mortgage amount that you’ve applied for. Furthermore, you won’t have to put down a larger deposit as a result of the property being undervalued.

Establishing your budget

It’s advised to establish your budget before you begin your property search. The good news is that most buy to let lenders won’t require you to have an enormous personal income. Nonetheless, having a personal income will certainly help your application. It can also show lenders that you’ll be able to cover the mortgage even if your student property has void periods.

The amount you can borrow will mainly depend on the rental income your student property can generate. Lenders will want the rental income to be at least 125% of the mortgage each month.

For instance, if your mortgage is £500 per month, then your property will need to fetch at least £625 per month (based on a stress-test of 125%).

Meeting 125% of the mortgage should, in theory, be quite easy on a student buy to let. This is because you’ll be receiving rent from each room which could range from anywhere between £200 – £600 per month (on average).

Not all lenders have the same stress-tests. If you need an HMO mortgage then your rental income may need to meet at least 180% of the repayment amount. This is still quite manageable given the circumstances.

You can speak to local letting agents to establish rental figures for the properties that you’re interested in. This should give you an indication of the amount you’ll be able to borrow. You’ll still need a relatively good credit score and as mentioned, you’ll require a 25% deposit. Even if you have bad credit, our specialists may still be able to help.

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Buying a student property for your child

Buying a student property for a child is quite common. If you’ve got spare cash in the bank it can make financial sense to invest this into a student property. Your child can then live there whilst studying which can save them money and at the same time provide you with an income stream.

There are a few things to consider, such as the stamp duty tax you’d have to pay. Stamp duty for second homes is currently set at 3%. If you’d like to avoid this, there may be other ways to arrange the purchase so that you’re able to save money.

A mortgage with a gifted deposit would allow your child to become a homeowner. Whilst you’re helping them onto the property ladder, you’re also saving money on stamp duty fees. That being said, lenders may not entertain a gifted deposit mortgage for an HMO, even if you were acting as a guarantor. As a result, gifting a deposit would be more suitable for simply helping your child purchase accommodation for themselves in comparison to an investment. This is more commonly known as a university mortgage.

Can I rent a property to offspring?

If your aim is to purchase an HMO student property for both investment and to provide accommodation for your child, then you’ll need a family buy to let mortgage. Family buy to let, which is also known as regulated buy to let, is considered to be a niche type of mortgage.

Lenders can be quite hesitant when landlords let to family members. This is because landlords are perhaps more likely to be more lenient on rental payments with family in comparison to tenants they have no relationship with. If you require a regulated buy to let mortgage, speak to an advisor before doing so. This is because regulated buy to let mortgages aren’t widely available.

Student buy to let experts

Investing in a student buy to let isn’t something that you’d want to rush. Finding the right finance to back your investment is vital in making sure your venture is a success. We often see landlords going to lenders that just aren’t suitable for their investment needs.

University mortgages involve so many different options that most landlords don’t know they exist. It’s worth speaking to a specialist who is experienced in this field who can then help find the right mortgage for you.

You can make an enquiry to get started and an advisor will call you straight back.


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