Student accommodation development offers excellent opportunities in the UK property market, with over 2.9 million students studying at UK universities.
Finding the right funding can be challenging, especially with projects needing quick completion. Bridging finance can provide the quick, flexible funding needed to move these projects forward.
Understanding Student Accommodation Development Finance
The UK student housing sector continues to grow, with a 24% increase in purpose-built student beds since 2014.
Universities can’t meet this demand through their own housing stock – they provide accommodation for only 23% of students, creating substantial opportunities for private developers and investors.
Purpose-built student accommodation (PBSA) now accounts for £50 billion of UK property value.
Projects come in various forms – from converting large houses into Houses in Multiple Occupation (HMOs) to developing new PBSA blocks. Each type has its own funding requirements and challenges.
Many mainstream lenders shy away from student property developments, seeing them as more complex than standard residential projects.
How Bridging Finance Works for Student Property Projects
Bridging finance fills this gap by offering short-term funding that matches development timelines.
You can use these loans for various stages of student accommodation projects, from buying land to completing renovations.
For new builds, bridging loans can fund the initial land purchase and construction costs until the project reaches completion.
If you’re converting properties, bridge funding helps cover purchase prices and refurbishment work. HMO developments often use refurb bridging finance to fund both acquisition and the necessary modifications to meet student housing standards.
The real benefit lies in the speed and flexibility.
You can often secure bridging finance within weeks rather than months, helping you move quickly when good opportunities come up. The loans also work well for projects that need staged funding releases as work progresses.
Large PBSA projects will find development finance more suitable.
Let’s talk bridging loans!
Who Can Access This Type of Finance?
Property developers, landlords, and property companies can all use bridging finance for student accommodation projects.
Experience levels do matter – if you’ve completed similar projects before, you’ll likely find more options available.
Lenders will look closely at your exit strategy – how you’ll repay the loan. This usually means either selling the completed development or refinancing onto a long-term commercial mortgage. You’ll need to show clear plans for either route.
The property itself acts as security for the loan, and lenders will assess its current value and potential value after development. Some might want additional security, especially for larger projects.
Borrowing limits
Upper borrowing limits vary among different types of lenders. Standard lenders might cap their lending at £25-45 million, while specialist PBSA lenders can offer up to £100 million. Private banks and wealth funds often assess each case individually without setting fixed maximums.
Lenders assess PBSA bridging loans using two main metrics.
The Loan to Value ratio tends to range between 65-75% for existing properties, dropping to 60-65% for land with planning permission. For land without planning permission, this might fall to 50% or below. The Loan to Gross Development Value typically sits between 60-75%, though some specialist lenders might stretch to 80% with additional security.
The amount you can borrow depends heavily on location factors such as how close the development sits to universities, available transport links and the size of the local student population.
Planning Considerations
Student housing development comes with specific planning requirements.
You’ll need the right permissions for your intended use, whether that’s changing a property’s use class or getting approval for new construction.
HMO licensing adds another layer of complexity. Most student houses fall under HMO rules, requiring specific safety standards and room sizes. Building regulations for student accommodation are stricter than standard residential properties, particularly around fire safety.
Risk Management and Exit Strategies
Managing risks starts with thorough planning.
Construction delays, budget overruns, and planning issues can all impact project timelines. Having contingency funds and flexible timelines helps handle unexpected challenges.
Your exit strategy needs equal attention. If you’re planning to sell, research the local market for student properties. For refinancing exits, start talking to potential lenders early. Many will want to see the project progressing before offering terms.
Exit finance
Development exit finance is a popular option with developers.
Once your site gets to around 90% complete, you have the opportunity to refinance your original bridge facility over to a development exit loan. This will have lower interest rates, and gives you extra time to either arrange long-term finance or secure a buyer for the site.
Read more: How to Lower Your Development Loan Costs Before Final Repayment
Working with a Specialist Broker
A finance broker with experience in student accommodation projects is a must.
They’ll know which lenders suit different project types and can often access exclusive rates. Their understanding of both bridging finance and student property helps structure deals that work for everyone involved.
Brokers also help prepare stronger applications, potentially leading to better terms. They can spot potential issues early and suggest solutions, saving time and money later.
Case Study Examples
Consider a recent project where a developer used bridging finance to convert a large Victorian house into student accommodation. The £500,000 loan covered both purchase and conversion costs, with the completed HMO refinanced onto a commercial mortgage.
Another example saw a development company use bridge funding to build new student flats. The staged funding release matched their construction schedule, while the broker arranged the exit finance during the build phase.
Next Steps
If you’re considering a student accommodation project, start by outlining your plans and timelines.
Research local student housing demand and planning requirements. When you’re ready to explore funding options, speak with a specialist broker who can help find the right bridging solution for your project.
Remember that each project brings unique challenges and opportunities. Working with experienced professionals helps ensure you have the right funding structure in place to bring your student accommodation development to life.
UK Student Accommodation Market Overview
The UK student accommodation sector continues to demonstrate remarkable resilience and growth potential.
With over 2.9 million students studying at UK universities, this market segment offers compelling opportunities for property developers and investors who understand its unique dynamics.
Recent research from Paragon Bank highlights several key trends.
Purpose-built student accommodation (PBSA) now accounts for £50 billion of UK property value, yet supply still lags behind demand in many university cities. Private rental properties remain the most popular choice for student housing, with nearly 570,000 students choosing privately rented accommodation for their term-time residence.
Smaller university towns often present the most attractive investment prospects.
For example, Swansea, with its 20,375-strong student population, achieves average rental yields of 9.56% – the highest in the UK for student properties. Hull and Plymouth follow closely with yields of 8.68% and 8.41% respectively. This trend is particularly noticeable in locations with a single university and student populations below 25,000.
The investment appeal extends beyond pure returns.
About 61% of full-time students live away from home during term time, creating steady demand. Parents or guardians acting as rent guarantors provide additional security for landlords, while properties near university campuses maintain consistent occupancy rates.
Looking at features students prioritise, research shows high-speed Wi-Fi and competitive rent levels rank above location in importance. Quality furnishings and communal living spaces also rank highly in student preferences, showing how requirements have evolved beyond basic accommodation needs.
International student numbers continue to grow, particularly from non-EU countries, adding further depth to the market. This growth helps offset any fluctuations in domestic student numbers and contributes to the sector’s overall stability.
FAQ
Smaller university towns with single institutions often perform best. Cities with student populations under 25,000 typically offer higher yields due to less purpose-built competition.
Typically 65-75% of the property value, with some lenders offering up to 80%. Minimum loans usually start at £150,000, with no maximum limit.
Applications can complete within 2-4 weeks for straightforward cases. Complex developments may take longer.
Not always, but having planning permission in place typically secures better terms and higher loan-to-value ratios.
Yes, bridging finance is available for converting existing properties into student accommodation, including HMO conversions.
Related:
While EU student numbers have decreased, international student numbers from other regions have increased significantly, with UCAS reporting a 17.1% rise in non-EU applications. This has maintained strong demand for accommodation.
According to Paragon Bank research, high-speed Wi-Fi ranks as the top priority (71% of students), followed by quality furnishings (69%), and communal living spaces (57%). Good transport links and proximity to campus are also important.
Most student houses fall under HMO rules, requiring specific room sizes, safety standards, and licensing. Requirements vary by local authority but typically include fire safety measures and minimum bedroom sizes.
Read more: How to Finance Your House to HMO Conversion
PBSA development typically requires larger loans and longer terms, while HMO development often uses shorter bridging loans. PBSA may require additional planning considerations.
Purpose-built student accommodation (PBSA) refers to properties specifically designed and built for student living.
Unlike converted houses or traditional residential buildings, PBSA is created from the ground up with students’ needs in mind.
Key Features of PBSA:
- En-suite bathrooms and private studios
- Communal study areas and social spaces
- High-speed broadband throughout
- On-site management and security
- All-inclusive billing structures
- Dedicated laundry facilities
The UK PBSA market has grown significantly, now worth £50 billion according to recent Paragon Bank research. However, demand still outstrips supply – there are currently 2.8 full-time students for every purpose-built student bed.
PBSA comes in various forms:
- Cluster flats with shared kitchens
- Self-contained studios
- Townhouse-style accommodation
- Mixed-use developments with retail spaces
- Both university-partnered and private schemes
Investment Considerations:
- Higher initial development costs than conversions
- Stronger appeal to international students
- More complex planning requirements
- Professional management often needed
- Higher rental premiums possible
- Longer development timelines
Location Factors:
- Prime sites near universities command premium rates
- Transport links highly important
- City centre locations popular but expensive
- Secondary locations need strong transport connections
- Some universities require first-years to live in halls
PBSA offers several advantages over traditional student housing, including modern facilities, better safety features, and professional management. However, development costs and planning requirements make it a more complex investment than traditional HMO conversion projects.
