Parents buy into low prices

Parents are taking advantage of lower house prices to buy property for their children to live in at university, according to estate agents. Over the summer, agents have reported an “upsurge” in the number of parents buying new-build flats in the university cities of Leeds, Leicester and Birmingham – as these types of property have seen the biggest price reductions in the past two years, falling as much as 40 per cent.

“London and other university towns are filling up with parents from both the UK and overseas seeking student flats,” says David Adams of estate agency Chesterton Humberts. “Renting an apartment during university years is seen by many as dead money.”

According to an analysis by estate agents Savills, the university towns with the lowest average prices for flats are Leicester, Lancaster and Loughborough. Terraced houses are cheapest in Durham, Birmingham and Nottingham.

Lucian Cook of Savills says it is important for parents to compare the price of terraced houses with flats before considering a purchase. “In Birmingham, the cost of buying a terraced house is actually 30 per cent cheaper than buying a flat,” he says.

However, the university cities of Oxford, Bristol and Cambridge are the most expensive areas for buying.

Even so, Zoopla, the property search website, has found that buying is a better option than renting in about three-quarters of the top 50 locations around the country. Its Rent vs Buy Index compares current asking prices with the average rents for two-bedroom flats based on an interest-only mortgage at 5 per cent interest. Birmingham, Cambridge and Nottingham top the table of university towns where it is better value to buy than rent.

Cook says that when weighing up a decision, parents should consider the availability of university halls of residence. For example, about 73 per cent of Cambridge students live in halls for the duration of their time at university, according to Savills, and it is a similar situation in Warwick and Lancaster.

However, at universities such as Birmingham, Sheffield, Southampton, Bristol, Sussex, Newcastle-upon-Tyne, Leeds, Bath and Nottingham fewer than 20 per cent of students live in halls. “In these locations, parents are much more likely to consider buying a flat for their children’s university years,” says Cook.

With house prices expected to soften further, analysts recommend holding a student property as a medium to long-term investment – beyond a child’s three or four-year degree course – to make the most of rental income and capital growth.

Durham and Birmingham have the highest gross yields at 7.1 per cent and 6.8 per cent respectively.

Liam Bailey, head of residential research at Knight Frank, says demand for student lets continues to grow in the north of England.

“Student demand has emerged as the key driver of the private rented sector in the three key northern cities (Sheffield, Manchester and Leeds),” he says. “Developments close to the cities’ university districts are experiencing the strongest demand.”

Most of the pricier university towns have lower gross yields – 4.1 per cent for Bristol and 4.3 per cent for Bath – but buyers are advised to consider the greater potential for capital growth.

source: FT.com