September is just around the corner, as is the next academic year.

Soon, students across the UK will be getting ready to start their new lives at university.

And by all accounts, this could be a record year.

Vincent Burch – MPU

After two years of lockdowns, video calls and no night clubbing, youngsters appear desperate to make up for lost time.

Applications from 18-year-olds have reached their highest level in almost a decade, according to UCAS and UniHomes.

Rising 4% since last year and 14% since 2020.

This could create plenty of demand in the rental market, as millions more teenagers attempt to make their mark in the world.

To put it in perspective, in the 2020/21 year, there were 2.66 million students in higher education, a record high at the time.

What’s more, some 88% of them ended up living in student accommodation.

By digging into the specifics, it’s clear to see there could be potential in new sub-markets ripe for targeting.

Record numbers are applying to study in Wales, where BTL property may be much more affordable when compared to Southern England.

Additionally, some universities are going out of their way to attract foreign students with deep pockets.

BTL investors are leaving the market in droves  – here’s where you could come in

At the same time, the state is doing all it can to improve the appeal of a degree.

The Department for Education announced student loan interest rates will be cut from September, while fresh funding has been rolled out for mental health support services.

Not to mention the millions now available to eligible universities through the Higher Technical Education Skills Injection Fund.

Yet, despite these positive developments, some landlords feel compelled to leave the market.

Regulatory changes were introduced in recent years to create higher standards for houses in multiple occupation (HMOs).

A popular option; HMOs are considered the “traditional” house share for students, but tougher rules are constraining the supply.

Rather than face the costs of incorporating new taxes and regulations, many landlords in the HMO scene sold up.

There was just over 511,000 HMOs in England in 2019/20.

This fell to around 497,000 in 2020/21.

London, arguably the country’s biggest student hub, saw the largest declines of 13%.

In what will sound all too familiar, supply is declining just as demand is on the rise.

Students in desperate need of independence won’t be happy living with their parents.

Where does it make sense to invest?

So where can investors look to get in on the action? We’ve established supply is needed in Wales and London.

But opportunity can be found across the UK.

This could also bode well for investors who can’t quite afford the capital.

University applications in the East Midlands have risen at the highest rate seen since 2014.

The Northwest and Yorkshire & Humber have also seen applications jump at the highest rate since 2016.

Away from the hard numbers, a number of UK cities have been identified by students themselves for having the best outlook for 2023.

The latest QS World University Rankings rated university locations on factors such as affordability and desirability.

Out of 140 locations spread across the globe, 10 UK cities emerged as clear winners for students.

This included Edinburgh, Manchester, and Coventry.

Acting on this now could secure some healthy returns.

Towards the end of 2021, investments in HMOs yielded 7.5% on average, while individual flats only brought in 5.4%.

Additionally, Savills believes “sharper yields is the market trajectory” for purpose-built student accommodation.

What about the long-term?

Some landlords may fear there could be downsides in targeting students.

Afterall, new tenants will need to be found every year or two, and who’s to say applications won’t drop as degrees risk becoming too expensive?

But, students today present a lot of long-term opportunities, potentially more so than previous generations.

Graduates these days are facing an incredibly expensive reality and will likely need affordable HMOs for long periods.

Generation Z – those born between the late 90s up to 2012 – are expected to be completely priced out of the buying market, at least for the foreseeable future.

In this year alone, they’re expected to pay £11.7 billion in rent.

That’s a fifth of the country’s total bill.

It’ll be a long time before any of today’s fresh-faced graduates progress enough in their careers to start thinking about living alone. Let alone moving into a home of their own.

Landlords who take care of students now will be remembered by graduates who have a long road ahead of them.

Imogen Williams
MFS are a bridging loan and buy-to-let mortgage provider, not financial advisors. Therefore, Investors are encouraged to always seek professional investment advice.
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Imogen Williams
Imogen Williams, Regional Sales Manager at MFS.

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