A landlord’s guide to letting out student property

One of the advantages of letting student accommodation is that there will always be a reasonably predictable and steady demand: this is especially so during the summer months when students are likely to be embarking on their property search prior to the start of the academic year.

The UK has an exceptionally large student population which looks set to continue in 2009 the number of new university entrants rose by 6% on the previous year, to over 427,000. Total university undergraduate numbers reached almost 2 million last year.

Most major UK towns and cities have their student “hotspot” areas. That said, there are various pitfalls to be aware of as a student landlord, not least of which is the increased likelihood that your property is more vulnerable to burglary (the majority of areas heavily populated by students are also prone to higher levels of crime). Landlord household insurance premiums are therefore likely to be higher.

Anyone considering becoming a student landlord should also consider the following:

Local knowledge

Local supply (and demand) of available student housing in the area is subject to drastic and rapid change and so you will need a keen eye for the market and allow yourself plenty of time before making a decisive move to invest in a property or add to your portfolio of properties. With this in mind, it is also worth consulting the local planning office and the accommodation offices of the colleges and universities in the region to get an idea of projected student numbers and future developments.

Students have standards...

Do not be taken in by the assumption that students are happy to live in squalor – as many of them are accustomed to comfortable and clean family homes, they tend to have much higher expectations of their living conditions, and standards of student accommodation have improved considerably in the past decade.

They have certainly seen a noticeable improvement since the cliché of the grubby, unkempt ramshackle student dwelling depicted in irreverent 1980s comedy series ‘The Young Ones’. These days, think more along the lines of ‘This Life’ (well-heeled and hormonal law graduate housemates romping in a palatial London pad) and ‘Hollyoaks’ (well-dressed young trendies recline on their plush sofas in well-appointed show homes) rather than the grimy dilapidated slums of ‘Shameless’.

But some clichés still stand...

That said, students are generally less fussy than professional tenants (a ‘shabby chic’ kitchen, threadbare carpet and avocado bathroom suite will probably not repel the average student) and so are liable to prove messier and less fastidious. It is therefore essential that you have a thorough inventory drawn up at the start of each tenancy (backed up with photographs where necessary). While this means you probably won’t need to spend money improving a reasonably inhabitable but outdated house or flat to tempt potential tenants, it does mean there is a higher risk that it will become progressively less inhabitable with a group of unsupervised teenagers living in it.

Are students less liable to pay their rent on time (or at all)? It’s no secret that the majority of students do struggle financially, in fact the word ‘student’ has almost become synonymous with ‘skint’, however generally most are pretty savvy at prioritising their finances, and their rent and essential bills – contrary to popular opinion – do feature at the top of the list usually a notch or two above booze and partying.

Regulations and certifications

As with all rented accommodation, a gas safety certificate needs to be issued and all gas appliances should be checked annually to comply with regulations. Periodical electrical checks are also recommended and many landlords have a NICEIC certificate, although this is not a legal requirement. All rented residences which are supplied furnished or part-furnished need to be covered by the Fire Safety Regulations – this refers to all upholstery and soft furnishings including mattresses/beds, sofas, armchairs, cushions and pillows (although it does not apply to carpets and curtains).

Security deposits and Tenancy Deposit Protection Schemes

In England and Wales, all landlords and letting agents renting property under an Assured Shorthold tenancy (AST) are legally obliged to hold deposits under a government-approved Tenancy Deposit Protection Scheme. These schemes were introduced through the Housing Act 2004 (effective from April 2007) and exist to protect tenants and ensure they receive back all (or a proportion of) their deposit at the end of their tenancy if they are entitled to it.

There are two types of scheme: insurance-based and custodial, and both are designed to make it easier for a tenant to claim back their deposit and to expedite the process of deposit disputes should they arise. The landlord or letting agent is required to inform the tenant about how their deposit is being protected within fourteen days of receiving it. Failure to do so can result in legal proceedings and the tenant has the right to seek compensation (equivalent to three times to deposit amount) if they do not receive information about the Tenancy Deposit Protection Scheme within the two-week timeframe. If the landlord or letting agent fails to register the deposit with a scheme at all, the tenant may apply for a court order.

Guarantors

Some student landlords may prefer to have a guarantor for each tenant instead of demanding a cash security deposit as part of the agreement. For most students, the named guarantor will be a parent, and this means that if the student tenant fails to keep up with rent payments, the responsibility to pay then falls to their named guarantor. The landlord or letting agent should conduct thorough credit checks and references, and most require that the guarantor own their own property.

Insurance

Every landlord needs specialist landlord insurance, because the buy-to-let property is such a valuable asset and therefore needs adequate protection against damage and disaster. Insurance needs to cover the structure of the building primarily, but also fixtures, fittings and furniture, including white goods, floor coverings, light fittings and curtains.

The insurance premium for a furnished property will be slightly higher than for an unfurnished one and other factors that determine cost are the age, size and architectural style of the property, structural materials, geographical location and the installation of any security systems. Ensure the policy has provisions for common accidents such as window breakages and note that ‘theft’ is only assessed as such if there is evidence of ‘forced entry’ (i.e., if your tenant scarpers with your telly, that loss will generally not be covered by standard landlord insurance) – hence the importance of deposits and guarantors. 

Bills and council tax

Make it clear in the agreement what is included in the rent (e.g., water rates). Properties inhabited solely by students will be exempt from council tax but you will need to provide evidence of this to the local authority. It is worth remembering that in a typical student household averaging five occupants (in the professional market this number is just two), if just one tenant has left education and is in employment, the property will be subject to council tax charges. Make a note of meter readings at the end of each tenancy and also, where possible and practicable, at the end of each term when students are likely to have returned home for a few weeks and so left the property vacant. This will help in the event of any problems over bill payments and disputes.

Maintenance issues and inspections

While the tenants are contractually obliged to keep the property in good order, the landlord is responsible for maintaining the internal and external structure of the property – pipes, drains, gutters, sanitation, water supply and gas and electricity supply. A minimum 24 hours notice is required before a property inspection is carried out (these are recommended at least once or twice a year to ensure the property is being kept in acceptable order.)

It is important to bear in mind that once your tenants have moved in, you have little control over their conduct and behaviour – and they have the right to reasonably refuse you access. However if you rent through an agent they should remove any stress from potentially unpleasant situations by dealing with issues that arise on your behalf. It is crucial to choose your tenants carefully and always insist on a guarantor – again this is where an agent might prove a useful investment, as they have experience of vetting tenants and recognising potential problems before they happen.

HMOs

There is a temptation to squeeze as many students as possible in to a confined space, as some landlords tend to charge rent ‘per person’ rather than a flat fee per property. Hence in a student house with two reception rooms, a landlord will usually be inclined to advertise the second reception room as a ‘bedroom’ to increase their rental income. On the whole, students are willing to put up with reasonably cramped living quarters as it means their proportion of the rent drops.

Related to this however, as part of the Housing Act 2004 the recent HMO (Houses in Multiple Occupation) licensing law means that landlords letting a multi-storey property (three or more levels) to five or more unrelated people are subject to certain statutory regulations. Such houses have been classified as a HMO throughout England and Wales since April 2006 and in Scotland this classification applies if there are just three or more adult occupiers. These licences were introduced to promote better living standards by compelling landlords to comply with certain stipulated conditions. The conditions vary depending on the local authority. Before granting the landlord a HMO licence, some authorities will insist on certain improvements being made: for example, a wash basin fitted in each bedroom, installation of a fire safety system or an extra bathroom or toilet.