Student property has long been a popular investment for many, but will harsh tax changes start to outweigh the attractive yields that the market has to offer?
Landlords across the UK now are faced with the implications of the national extension of HMO licensing.
In recent years the popularity of the private rented sector has rocketed with student buy-to-let properties now accounting for 20% of households in the UK. The increasing popularity of universities has resulted in students now accounting for an enormous proportion of the private rental sector through the high demand for rented student accommodation. Statistics show that 46% of 25-34 year olds are now privately renting compared to only 24% in 2006. The increase in buy-to-let and renting has however left the first time buyer and mortgage market bearing the brunt with statistics showing only 35% of 25-34 year olds now buying a home with a mortgage, an 18% decrease compared to previous years.
In October 2018, the government extended mandatory HMO licensing requirements. The alteration to the legislation included a number of changes, one being the removal of the ‘three storey rule’. The changes to the legislation also redefine the allowed minimum size of bedrooms. Double bedrooms must now be 10.22sqm, a single bedroom must be a minimum of 6.51sqm and a room for a single child under the age of 10 must be a minimum of 4.64sqm. Any rooms smaller than the requirements listed above therefore cannot be used as a room in which to sleep.
The national extension of HMO licensing proposes to introduce a three-year tenancy agreement. Essentially this will ensure that landlords offer all tenants a minimum three year contract – tenants are however able to opt out of the agreement by leaving before the three year marker should they choose to. This proposal does pose problems for the market regarding student accommodation due to the academic year and the period of time students realistically reside in a property for. This is why the government are considering making student accommodation exempt from these specific regulations.
Experts have warned that the extensions to mandatory HMO licensing may actually result in a decline in the student buy-to-let market if the government fails to make student accommodation exempt from these regulations. The potential enforcement of the three-year tenancy agreement goes against many of the attributes of the student buy-to-let market that renters find so compelling. The flexibility that the private rented sector offers to student tenants makes it unparalleled in the ever-changing, competitive housing market.
The national extension of the HMO licensing has its pros and cons, aiming to protect both parties involved. However the scheme itself does not include a repossession clause, making it more difficult for landlords to secure a lender for a property with such added risks.