Investing in student accommodation remains an attractive property type due to the good yields and demand for student accommodation in the UK.
With the current weakness of the pound foreign investors and developers are increasingly looking to develop student accommodation and then hold as an investment.
Student accommodation has historically performed well as an investment with rental growth outperforming inflation in recent years.
Data obtained from HESA shows that since 2012/2013 higher education student numbers are increasing year on year with the total number of students in higher education during 2016/2017 at 2,317,880.
Investor activity was strong in 2017 with many of the UK’s large student property portfolios changing hands. 2018 looks set to continue in the same trend.
Student Accommodation Development Finance Lenders
There is a plethora of lenders willing to lend funds for the development of student housing. However, finding the right lender that will lend at the right loan to value, at the lowest rate of interest, with lowest exit fees and that won’t let you down at the last minute is another matter.
Fox Davidson work with trusted student accommodation development finance lenders that are active in the market and have funds to lend.
Some of these lenders will only lend where there is a Russell Group University. The Russell Group now represent 24 universities (as of 2018) and include universities in Bristol, Cambridge, Leeds, London and Manchester.
Fortunately, not all student accommodation development finance lenders limit themselves in this way and we can finance student accommodation wherever there is sufficient demand.
Where there is demand you need supply and consequently many of the UK’s student housing development finance lenders are keen to lend.
What are the terms for student accommodation development finance?
The terms for development finance on student accommodation varies between lenders with some refusing to lend on this asset class and others offering very attractive terms on both the rate and fees. The typical terms for lending are:
- Up to 80% of total costs. This includes 100% of build costs and 80% of land purchase, stamp duty and professional fees
- Lending subject to 65% of gross development value
- Rates from 3.75% for lower loan to value lending
- Lenders fees from 1.5% and similar exit fees on the loan amount (not GDV)
- Loans from £500,000 and up to £100 Million
- Geographically we have lenders that will lend across the whole of the UK.
What paperwork is required for student housing development finance application?
Development finance lenders will typically require the following paperwork to assess the viability of lending.
- Development appraisal, detailing purchase costs, build costs, timescales and details of the professional team.
- CV showing past development experience of the developer.
- Full planning for the site
- Details of the planned exit (sale or refinance)
Long term commercial investment finance for student accommodation
To achieve the best possible funding terms for holding student accommodation as an investment we will need to demonstrate to the lender the demand for a development.
There are two ways in which a student development can be tenanted, one is from the local university itself pledging to house ‘x’ amount of students and the other is from private student demand for the area. However the property will be occupied the bank will need to satisfy themselves that the occupancy rate will be sufficient to enable funding.
With access to all UK high street commercial lenders, building societies, challenger banks and private banks Fox Davidson are well placed to negotiate market leading finance terms for investors wishing to hold on to their development long term as an investment.
What are the terms for student accommodation investment mortgages?
- Loans from £200,000 up to £100 Million
- Loan to value of up to 80%
- Rates from 2% over bank base rate
- Interest only and/or capital repayment
- Fixed and variable rates
Fox Davidson work with developers both in the UK and outside of the UK. We can finance property in the name of an individual, a corporate structure, a pension or in the name of a trust.
We offer a complete solution from student housing development finance through to the long terms investment finance.
Contact us to find out more about our award winning property finance advice.