The new academic year is just around the corner. So, many investors might be thinking about diversifying their portfolios and delving into the student accommodation market. For good reason, too. In 2020, the student accommodation market was valued at £4 billion. Clearly, opportunities in this space will present themselves to investors in the months to come.
Source: Ibis World
But the student accommodation market can be tricky to break into. Largely made up of ‘houses in multiple occupation’ (HMOs), these properties have additional landlord criteria, regulations and tenant demands that regular single-let properties don’t. These extra obstacles can often deter investors. As such, this blog will outline what landlords need to know about student accommodation regulations.
What is an HMO?
In short, an HMO is a ‘house in multiple occupation’. This is defined by three or more tenants living in a property to form at least one household. That means they share a toilet, bathroom and kitchen.
If there are more than five tenants in one property that share one of these facilities, then it would be known as a ‘large HMO’. Sometimes, these properties are known as a ‘house share’.
Why invest in student accommodation?
There are many reasons for why a landlord might choose to invest in an HMO and then let it to students. For instance, student HMOs can attract higher rental yields than a regular BTL property. Moreover, demand remains consistent for landlords, provided their property is in a good location and of a high standard.
Student rental cycles are also highly predictable, due to the nature of the academic calendar. This reduces the risk of vacancy as landlords are given plenty of time to find new tenants each year.
Finally, student HMOs may offer landlords a reliable source of income, despite stereotypes about students’ ability to pay rent. If a landlord gets all the tenants of an HMO to sign a central tenancy agreement, they are all equally liable. This means rent will be covered by the rest of the group if one of their fellow tenants fails to pay or leaves the property.
Landlords can also insist on tenants providing a guarantor (usually their parents). The guarantor will pay the rent if they cannot afford to. This can often make students more reliable renters than other demographics.
Student accommodation regulations for landlords
In truth, there are no student-specific regulations involved when letting to students. In the eyes of the regulators, students are no different to regular tenants. However, there are laws specific to HMO buildings landlords must be unaware of.
The regulations for investing in student accommodation can vary across the UK. In England and Wales, for example, landlords do not need to acquire an HMO license for properties with less than five tenants living in them. Conversely, in Scotland and Wales, a license is required for HMOs of any kind, including those with just three tenants living in them.
In all cases, however, an HMO license is only achievable if the landlord adheres to set laws, the code of practice and has a clean criminal record.
Building regulations for student accommodation
According to the Housing Act of 2004, properties that match the definition of an HMO must fall into the following categories:
- A house or flat that more than one household shares a basic amenity (i.e., not self-contained)
- A converted building
- A building that does not comprise of self-contained apartments
- A building that is declared as an HMO by a local council
The property must also be the right size for the number of tenants that will be living in it.
Landlords should also be aware that some local councils or authorities will have their own regulations. For example, landlords will need to acquire planning permission to change a property’s ‘use-class’ if they wish to use it as an HMO when it was previously a single-let property.
It is important landlords check the regulations for the local area, otherwise they run the risk of a fine that could range from £10,000 – £40,000.
Source: National HMO Network
Student HMOs, like all privately let properties, will also need to comply with new energy regulations. From 2028, new government rules will force buy to let property owners to achieve an Energy Performance Certificate (EPC) rating of C or higher for their assets.
Find out more: What is eco privilege and how can MFS help BTL landlords?
Student accommodation room size regulations
There are also specific rules regarding room sizes in HMO properties. Since October 2018, the following regulations around the minimum room size have been in place:
- Single-occupancy rooms must have a minimum floor space of 6.51 square metres
- Double-occupancy rooms must have a floor space of at least 10.22 square metres
- If any part of the room has a ceiling height of less than 1.5 metres, it cannot be included in the floor space calculation
Source: House of Commons Library
Student accommodation fire regulations
There are also tighter regulations regarding fire safety that HMOs, unlike smaller lets, must adhere to. With different households living under one roof, the number of risks increase. As such, government regulations are needed to ensure the safety and wellbeing of HMO tenants.
These regulations are as follows:
- A risk assessment must be carried out
- Furniture and furnishings should be ‘fire safe’
- All tenants must have clear escape routes out of the building and have fire doors on bedrooms, kitchens and living rooms.
- A smoke alarm has to be installed in every room of the property (tested at the end of each tenancy)
- There must be a mains-powered, central fire alarm system
- There must be emergency lighting on each floor (i.e., lighting that will work when the power goes down)
- A fire extinguisher is required on each floor and a fire blanket in the kitchen
Failure to adhere to these regulations could be life-threatening to tenants. As such, fire regulation negligence can lead to arrest and jail time.
How to finance a student HMO investment
Student HMOs are often larger, older buildings that require landlords to carry out some degree of work on them to comply with the regulations listed above. Likewise, landlords often need to renovate their properties to attract tenants and higher rental income.
As such, it is important that landlords are aware of the financial options available to them, whether they are buying or renovating a property. Indeed, despite the many similarities between single-let investments and student HMO investments, there are still some differences and complexities landlords must be able to adapt to when acquiring a financial solution.
At MFS, we are able to assist landlords with all manner of things in the student HMO market. For example, if a landlord wishes to convert their single-let property into an HMO property, we could deliver a bridging loan in as little as three days to help them pay for the necessary renovations.
Alternatively, if a landlord has bought a property at auction and plans to use it as a student HMO, a bridging loan could be used to pay the auction fee within the 28-day deadline and make the necessary refurbishments. This provides the landlord with breathing space and time to acquire a long-term financial solution for the property and ensure they don’t miss out on their investment.
We consider all applications on a case-by-case basis. By underwriting from the start of the application process, we can take on projects that other lenders might shy away from. We ensure a smoother, faster and more transparent service, due to our flexibility and speed.