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Key Insight

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Types of student accommodation

It’s useful to break student accommodation down into 5 main types:

These are usually former residential houses that have been converted to house three or more tenants, where each is from a different household and share communal kitchen and bathroom facilities (unless all bedrooms are ensuites). HMOs have to have C4 planning consent, are subject to local licensing requirements, and must comply with regulatory standards concerning safety, amenities and room sizes. Flats with three bedrooms or more are also classed as HMOs.

Whether built from the ground up or converted from larger premises, these blocks typically house anything from around 50 to 500+ bedrooms formed of either studios, single ensuite rooms or cluster flats, and often provide a range of lifestyle facilities onsite such as laundry services, gyms, concierge, cleaners etc.

Converted from small office blocks, commercial premises or large period houses etc, these blocks have fewer bedrooms and onsite resources than PBSA, and may also consist of either studios, single ensuite rooms or cluster flats.

These can be repurposed to rent to students, normally without planning permission if they are for two students or less.

These are often sold off plan during the construction of PBSA to fund developer costs and normally come with a rental guarantee period.

Is student property a good investment?

Not all student accommodation is the same but it is possible to talk in general terms about some of the distinctly advantageous features of investing in this asset class:

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(typically July to June). This creates a very predictable lettings cycle, minimises the chances of void periods, and virtually rules out the need to ever evict tenants.

often by more than six months. This gives landlords a lot of security, high visibility on lettings status and ample scope to manage future performance.

providing a high degree of income security, drastically minimising rental defaults and the consequent need for expensive court action.

which simplifies and lowers the cost of the lettings process significantly compared to letting on a room by room basis. It also offers another layer of income protection in that all tenants are jointly liable for ensuring all rent is paid.

whether monthly or quarterly, and in the case of some PBSAs, up front for the year by many international students, providing significant cashflow benefits.

This is especially true for properties finished to a very good standard as students are an ever more demanding and discerning consumer and willing to pay higher rents for superior accommodation.

so landlords are never asked to contribute to this cost, and aren’t susceptible to adverse and costly changes in regulation (e.g. backdated tax banding of each separate room).

The ‘Article 4’ planning directive restricts the creation of new HMOs in popular student areas. This effectively reduces competition while boosting likely annual increases in a property’s value.

between types of accommodation, and between high yielding higher risk university areas (e.g. Hull, Derby) and lower yielding low risk areas much more likely to provide strong capital appreciation (e.g. Lancaster, Durham, Lincoln, Loughborough).

as university intake always increases during economic downturns as more people delay entering the jobs market, thus creating higher demand for accommodation.

and well located good quality student accommodation looks set to continue performing strongly over the medium and longer term.

Managing risks

It’s essential to be clear on how to navigate through the Dos and Don’ts of student accommodation to avoid common pitfalls and generate the very best returns possible.

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HMOs – Definition and licencing requirements

HMO stands for House of Multiple Occupation. A property is a HMO if it is rented to at least three individual tenants from more than one household, and who share toilet, bathroom or kitchen facilities.

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A household consists of either a single person or members of the same family who live together. It includes people who are married or living together and people in same-sex relationships.

Understanding Article 4

Under current planning regulations, a normal residential dwelling is classed as C3 whereas an HMO is classed as C4.

Up until 2010, ‘Permitted Development Rights’ meant that a house could be converted to an HMO (from C3 to C4) without the need for planning permission.

Since 2010 however, local councils have been given the power to remove permitted development rights through a clause known as Article 4. In other words, councils now have the right to insist that planning permission is granted before a residential house is converted into an HMO.

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The purpose of the Article 4 clause is to give councils the power to control the spread and density of HMOs in line with their local housing strategies. As a result, councils use Article 4 in different ways across different areas, so if you are considering purchasing an HMO or converting a house into an HMO, it is vital that you understand how the Article 4 planning restrictions apply in the area concerned.

It’s important to understand that in designated Article 4 areas, councils very rarely grant planning permission for the creation of new HMOs.

Before purchasing a house for conversion to an HMO it’s essential to verify that it’s likely to be granted planning permission by the local council (e.g. if it’s not in a designated Article 4 area).

Before purchasing an existing HMO, it’s still vital to check it’s Article 4 status. If it has been used continuously and exclusively as an HMO since before the local council instituted Article 4, then the HMO has proper C4 planning status. This needs to be proven, however, for example, by an unbroken series of tenancy agreements covering the period in question.

Where there is some doubt about Article 4 status of an existing HMO, or where there is some vital paperwork missing (e.g. some tenancy agreements), a planning document called a ‘certificate of lawfulness’ (also known as a lawful development certificate) will need to be obtained from the local council to prove that the existing use of the property as an HMO is lawful. Many lenders insist on this document being obtained, even if all other forms of documented proof can be produced.

So in summary, if you are considering buying a property, either as an existing HMO or with a view to converting it into one, you need to ensure that you understand how the above laws and regulations apply so that you’re not left with a property unfit for purpose.

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