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The future of the student buy-to-let market

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The coronavirus pandemic has hugely disrupted the lives and education of university students across the UK. But how has it affected the student buy-to-let sector? Our Mortgages Managing Director, Richard Rowntree, discusses the impact and what the future might hold for the student property market.   

There are 143 universities in the UK according to The Times rankings, so visiting many of our major towns and cities means you’re unlikely to be too far from a student stronghold. The prestige of our educational institutions attracts thousands each year and reaches far and wide; the UK’s net migration figure for the year ending March 2020 was 313,000, with 257,000 people moving to the UK for formal study.  

The Office of National Statistics’ latest quarterly migration report found that the largest numbers came from China and India. When combined with domestic students, we have a total of 2.38 million people studying in higher education, according to Universities UK figures from 2018-19.  

This demonstrates why the provision of rented accommodation for students has been an integral component of buy-to-let lending since its inception in the mid-90s. Although wear and tear can be a challenge, yields on this property type tend to be higher, whilst landlords benefit from parental guarantees.  

In more recent years, large scale developers have identified the opportunities this market presents; but even with impressively designed blocks being built at impressive speeds, whole streets close to universities are still dominated by conventional houses shared by groups of students.  

It is clear to see then why landlords and lenders alike were concerned when Covid-19 looked set to jeopardise face-to-face learning in the 2020-21 academic year and perhaps longer term. A survey commissioned by London Economics showed that this was not without basis. It revealed that over a fifth of prospective students (22%) considered deferring going to university.   

This was back in May, however, and quite a lot has changed since then.  

In August, a revision of the grading system meant that A-level assessed grades by schools and collages were accepted. This U-turn meant that many more students gained the qualifications they needed to secure a place at university than previously thought, and left universities scrambling to process a wave of extra applications.  

This has translated into landlord demand for property in established student areas. After some of the updated grades were more favourable than those previously awarded, this demand was more evident in locations close to highly rated universities compared to the institutions sitting lower down the league tables. 

Lockdown has had a huge impact on many of us, so although some will have been deterred, a significant number will have actually been more motivated than ever to fly the nest and experience their own slice of student life. Despite a second lockdown, students are still away studying.    

We are also yet to see the longer-term impact of the pandemic on unemployment. While the Government’s job support scheme has been extended, this looks to be an unsustainable and temporary measure so we may well encounter a rise in unemployment. History has shown us that this tends to correlate with increasing numbers entering higher education.  

For me, the take-away is that the market is impacted, both positively and negatively, by a wide range of events, some of which we have learned to predict, others are part of a wider environment and totally out of our control and scope.  

So, it is wise to be agile and adapt to changing conditions, but there is also a balance to be had. I know that one of the frustrations of the sector throughout the pandemic is frequently changing product availability. This is something we have tried to avoid, instead opting for a more consistent approach that has enabled us to continue lending throughout the pandemic.  

When uncertainty surrounded the future of higher education we withdrew from that section of the market. While this does lead to a reduction in product availability, we would rather set out our stall so brokers know what to expect from us - lending only in situations where we’re confident that any risk is manageable and that the service we provide when doing so is at the high standard we strive to deliver.    

Once the situation became a little clearer, we re-entered the student lets market.   

This more measured, some would say cautious, approach may mean we don’t grab as many headlines, but lending prudently protects our customers, our company and the wider economy so is something we are happy to shout about.  

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Paragon Bank PLC is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in England number 05390593. Registered office 51 Homer Road, Solihull, West Midlands B91 3QJ. Paragon Bank PLC is registered on the Financial Services Register under the firm reference number 604551