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Buying student housing – a guide for parents
5 September 2014
Keeping university living costs down by investing in a home is popular with many parents with children studying for a degree.
For parents unfamiliar with property investment, here are some tips on sourcing the right property at the right price.
Setting a budget is important from the start – and unless you can buy a home outright don’t forget the mortgage is based on rental return not multiples of income like a residential mortgage.
Generally the rent has to cover 125% of the mortgage calculated at 5% interest only.
So, a home generating a rent of £750 a month covers a mortgage of £144,000.
Assuming that £144,000 is 75% of the property valuation, parents need to add a deposit of £48,000 to buy a home worth £192,000.
Some of that monthly rent can be collected tax-free under the rent-a-room scheme. A renter can sublet and earn no more than £4,250 a year without paying tax to help pay the mortgage and bills.
Only someone living in the property can claim rent-a-room, so student children are OK, but the parents cannot make a claim.
Next consider practical points about the property.
One big issue is how many sharers. Some councils require all buy to let properties to be licensed, many require houses shared by three to five unrelated tenants to have a licence and all homes with six or more tenants need licensing.
Check with the local council to confirm licensing issues, as this will push up the cost of the investment.
Avoid student neighbourhoods – the property may become difficult to sell. Look for locations near transport hubs, so travel to campus is not a bind. Buying a home that is attractive to couples or families will make selling easier later.
Don’t buy near pubs, takeaways or other late-night noise magnets.
Finally, remember any rental income and gains from selling a buy to let home are taxable and you need to file yearly tax returns with HM Revenue & Customs (HMRC).