More schools and larger student population do not necessarily mean higher yields
After analysing mortgage applications for properties located in popular student postcodes, Paragon Bank has revealed the locations where landlords letting to students can achieve the strongest yields.
Paragon Bank has found that landlords providing student accommodation in towns or cities with just one university typically achieve the highest yields. Eight of the 10 – and 14 of the 20 – top yielding university towns and cities only have one main university within its borders.
Derby topped the yield list, with landlords generating an average yield of 8.67% in student postcodes. The city’s main educational institution is the University of Derby, which had 21,285 students during the 2020-21 academic year, according to the latest data available from the Higher Education Statistics Agency.
Pontypridd, home to a campus of the University of South Wales, was second on the list with a yield of 8.31%. The average property price there was the lowest in the top 10, as well as the rental income, making it a cheaper option for landlords wishing to purchase property.
Making up the list of the top three yielding student locations is Hull, another small city with one university. Purchasing property in Hull also requires a lower initial outlay, £172,429 on average, but landlords serving the University of Hull market also typically generate lower levels of average annual rental income, resulting in typical yields of 8.12%.
Among the top 10 locations for student yields, only two – Liverpool and Coventry – have more than one main university. Other locations on the list included: Salford, Lincoln, Worcester, Plymouth, and Durham.
“Although major cities like London, Birmingham and Manchester often boast the largest student populations, they are not necessarily the best locations for generating yields in the student buy-to-let market,” Richard Rowntree, mortgages managing director for Paragon Bank, pointed out. “This is because such places are more likely to be home to purpose-built student accommodation and greater levels of competition, whereas smaller cities and towns have less competition from large-scale institutional investment.
“Something else we often see when looking at the best yielding student locations is relatively affordable property – the top five locations for yield have property valued below the national average of £278,000. Another common trend the top 10 yielding locations share is that they have smaller private rented sectors serving the student market.”
Paragon’s analysis is based on applications over the past 24 months for property within identified student postcodes.