Becoming a landlord can ease cash crunch

Life is getting harder for students. The government is scaling back mandatory grants and replacing them with student loans, with the result that four out 10 students are taking term-time jobs and three out of 10 are missing lectures because of work commitments. Much of the money earned goes to paying rent, now half of a typical student's spending.

First year undergraduates have an easier time since virtually all universities offer them subsidised accommodation in halls of residence or flats. But from the second year most have to fend for themselves. A recent National Union of Students survey found that rent was the second biggest financial burden after socialising and entertainment and the single largest cost per year.

But anecdotal evidence suggests the rents paid by students are pretty stable. One reason is that rents are fixed annually by each new wave of students. Jeremy Wood, a director of Nationwide, says even the boom in buying to let has had little effect on student rents in the past 12 months.

"As a landlord you are only going to get the rent the market is prepared to pay," he says, and with students this is capped by an increasingly limited income. The package for a student living away from home is £3,450 a year, or £68.08 a week.

The average weekly expenditure on accommodation is £44.98, which leaves £23.10 a week for food, books, clothes and everything else. But rents across the country vary considerably. In Newcastle upon Tyne a room in the Fenham area may cost as little as £22 a week. In Bristol students can shell out up £55 a week for a similar deal. Most expensive is London, where average rent under a private landlord is £87.03.

Between the academic years 1996-97 and 1997-98 (the latest period researched by the NUS) the smallest increase in private sector student rents was 0.9% in the north-east while London students were hit hardest by a jump of 6.2%.

One alternative is for the student to become landlords themselves. Stuart Goff, owner of Goffs Estate Agents in Sheffield which specialises in the student market, says: "Now that the mandatory grant is no longer around, people are looking at ways of making living at university more financially viable." An increasingly popular way to do this is for a student, backed by parents, to buy a house to live in and let the other rooms out. Mr Goff says the number of people doing this through his firm increased from about 30 in 1998 to more than 45 in 1999.

Private sector student rents in Sheffield vary between £36 and £45 a week, so a four-bedroom house could generate income of £432 a month, while the student landlord would have no rent to pay. With a £50,000 mortgage monthly repayments might be £285 before insurance, leaving £145 to save or spend. Mr Goff says as long as the property costs less than £100,000 there is a fair chance of generating a decent capital sum which could be used to pay off debts.

Another way to avoid the rent problem is to persuade your parents to take out a buy-to-let mortgage and buy a property for you. Buyers need to put up at least 15% of the purchase price. Ray Boulger, technical director of John Charcol, the UK's largest mortgage broker, says it is best to have all the students in the house as co-signatories on the same tenancy agreement. This puts the onus on the residents to find a replacement for anyone who moves out since they are jointly responsible for the total rent payment.

One danger is that some mortgage lenders prefer properties not to be used for investment purposes. So if you do plan to earn extra from the property check the terms of the loan with the product provider first.