Skip to main content

Crystal Ball: Student Letting after the Renters Reform


Removal of Section 21 & fixed term tenancies is widely perceived as having the most detrimental impact in the student HMO sector. Simon Fletcher shares his view on how it will impact the local marketplace.

The Main Concerns

The principle concerns are:

  • We can't market for the following academic year until the current occupants give notice, which will be considerably later than we are accustomed to, and Student Halls (exempted PBSAs) will get first dibs on the reliable 'early movers'.
  • The marketing period for property  is likely to overlap with exam periods or even the summer, meaning more students seeking accommodation on an individual basis with far fewer organised groups for joint lets.
  • Student occupants might leave early or stay too long, leaving properties empty at times when the student market is extremely slack. Mortgage companies are likely to price that into higher interest rates for HMOs v. other BTL products which of course will feed through as higher rents
  • If we stick to Sept commencement, the typical length of a student let is likely to shorten, as barely any lets now end before 30th June, and many in July or Aug; but students are mostly done with needing to be physically near UP by end of May, so end of May will likely become the norm for termination of a joint let. Pricing with this assumption will reduce perceived differential price advantage of HMOs v. PBSAs. Even if planned for and priced in to rents, it adds cost: buildings insurance is more expensive if empty over 60 days, and the landlord's council tax liability will increase - again both of these side effects will feed through as higher rents
  • There's also been a rather odd idea put out on other forums that one individual in a joint tenancy can give notice unilaterally forcing the rest of the group to: leave, find a replacement, or stump up extra cash. This is nonsense. If the other joint tenants don't vacate at the same time, possession is not returned to the landlord and the tenancy continues with all signatories remaining jointly and severally liable, plus all original guarantors remain on the hook too. Joint lets retain the relative advantage that group behaviours are more consistent and predictable than individual behaviours.

How Are HMO Landlords Responding?

How student HMO landlords are responding to Renter's Reform implications:

  • Many understand that we have a demographic bubble coming out of schools for next few years and student demand is bound to remain strong. There are not enough new PBSAs to soak that up and if others leave the market, it bodes well for demand & rent levels.
  • Some with smaller 3-4 bed HMOs see demand for family lets in Portsmouth is also good and strong. It's less effort, lower cost and returns are now similar, and they expect to remove some properties from the student market but keep the properties as lettings. PCC's Additional licencing scheme is another factor driving the shift in that direction.
  • Some with 5+ bed HMOs know that there is strong demand also from professionals for HMO rooms and expect to switch at least part of their student portfolio to that segment – not necessarily as soon as the legislation changes -- but gradually over time.

Overall, there's reasonably strong anecdotal evidence that the number of student HMOs available in Portsmouth will reduce, in all likelihood faster than PBSAs are expanded, and that's a positive fundamental for those remaining in this market segment, at least for next 3-5 years whilst the demographic bubble is university age.

Personally, I see the risks in the family lets or professional HMO segments as no less acute than the new paradigm for student lets. There is one thing worse than an empty house at the wrong time of year, and that's one occupied by a tenant who isn't paying – which is not so uncommon in the family letting sector. With professionals in HMOs, they don't come in the right size groups as easily as students for a joint let. And individual room lets to non-students I'd say is more of a minefield than anything else – the operational and business impact of one unpleasant character in situ in a shared house, who can't be kicked out, doesn't bear thinking about.

Still, it is in our interests to avoid chaos and missteps through the transition to the new business environment norm as it will be in a few years time, and retain as much of the status quo operationally as possible. 

My Crystal Ball Says

On individual room lets:

  • Those willing/able to offer individual rooms will benefit in terms of demand with fewer students house-hunting as groups with the anticipated timing shift to viewings in exam season or over summer.
  • A landlord who ordinarily ensures a property is wholly empty one month a year in summer for maintenance loses the ability to control that. Thus, it becomes harder to keep an older property in good order. No-one expressed support for the idea I floated that there's scope to de-risk this by making the contract between landlord and parent (so it is not a tenancy subject to HA2004 or RRB) and allows the landlord to keep using fixed term contracts. I foresee maintenance implications as likely to be the biggest challenge with older properties let per room with the abolition of fixed term tenancies.

On joint student lets:-

  • To mitigate against the issues associated with more individual behaviour due to viewings in exam period or summer: Some of us will incentivise student tenants on joint lets to give notice and permit viewings far earlier than the 2 months minimum. Personally, I expect to offer £30-£50 per person incentive for notice to be received by End of Jan if the students want the tenancy to finish at end of May/Jun/Jul/or Aug. I expect that sort of offer will be taken up very readily, esp. for any group with several finalists. I'll then continue my marketing focus being in Feb/Mar as always at a time convenient for groups of friends to view together.
  • Instead of fixed terms, we will vary pricing always working on the basis that a student tenancy ends in May. We will still list rents priced on, typically, 11 months occupation, but offer that price only with July commencement. Then, if, at/after viewing, prospective tenants ask for September commencement, we re-calculate and offer the property at a monthly rent which is 11/9 of the rent advertised for a July start. This gives a marketing advantage v competitors advertising with rates based on a 9 month let from Sept. However, this only works if advertising/viewing before July, so will work best in conjunction with the incentive above. Not everyone will do it initially, but over time market pressures will work to make that a new norm. This will shift maintenance period from August to June.

In Conclusion

In conclusion, there are different things to think about for landlords using joint lets vs. those using individual lets. The implications on the likely shift of when marketing can be done affects joint lets more than individual lets, but there's a simple way to mitigate for that. The lack of control over when a tenancy ends will be more of a headache for those dealing with multiple individuals in one property vs. more predictable group behaviour. HMO providers will all lose ground competitively to PBSAs for a while, but overall, it's a challenge and a change, not a catastrophe.

There's some hint that the government might change the bill to allow fixed term tenancies to students, so this might all be moot anyway. It is likely that the biggest pain will be felt by students rather than landlords as the market adjusts - they will find the September rush which used to be restricted to first years and those too idle to get anything sorted sooner will now be the norm for everyone, meaning there will be 5 times as many people looking for property and a lot more who don't get to choose where they live, don't get to share with who they want to and who end up paying more than they would have to in a more predictable world.

House Inspection Hints & Tips
Government Ends University Visa Scam

Related Posts