Purpose Built Student Accommodation Finance Explained

Purpose built student accommodation (PBSA) has become a big part of the UK property sector in recent years. At the end of 2021 the market was estimated to be worth £60bn.  With high demand, this has produced strong yields for investors and it looks set to continue.  Here we outline:

What is Purpose Built Student Accommodation?


Purpose built student accommodation is housing built specifically for students. It generally takes the form of studio apartments or cluster apartments (multiple rooms with shared living spaces and kitchens).  The developments often come with access to modern leisure facilities such as gyms, games rooms and modern living spaces.  They are quite an advancement on the traditional student halls that many will associate with.

Why Is Purpose Built Student Accommodation So Popular?


In a nutshell it is due to the international reputation of the UK higher education sector.  It is the second most popular destination for international students. Countries such as China, US, Malaysia and India choosing the UK as one of its most popular destinations.  Therefore demand for accommodation is high.


For investors and developers, purpose built student accommodation  remains a very attractive option.  Some reasons for this are:


  • The international reputation of the UK higher education sector means that the market is less affected by macro economic conditions such as Brexit
  • The continued growth in the numbers of students enrolling for higher education means that this is potentially a more stable revenue stream than other forms of development

  • PBSA tends to offer lower yields than other development opportunities such as traditional HMO’s at a result of the stabilised income, due to the reduced risk profile. 

  • Better cost efficiency can be achieved on the basis of economies of scale. For example, lower maintenance costs are typically associated with student accommodation.

  • A hands off landlord experience can be achieved by handing it over to a management company once developed.

What Factors To Consider When Securing Funding?


A purpose built student accommodation  scheme is traditionally more specialised than other development schemes.  In addition to the criteria used by lenders in making a decision to lend (see Development Finance Explained) here are a selection of purpose built student accommodation  specific criteria:




This is without doubt the most important element to consider, both on a macro level and micro level.  


Macro level: The city/town that the site will be located in.  Ever heard of the Russell Group? These are the  24 most prestigious universities in the UK and secures two thirds of all UK research grants and contract income.  Lenders will potentially offer preferential rates on such locations as they have a higher chance of attracting full occupancy, and a higher percentage of international students are attracted. 


It is worth noting that this alone does not guarantee success, the popularity of purpose built student accommodation  schemes means that saturation in certain locations is a risk.  On the other side, opportunities may be available in lesser known location where there is a vibrant and popular university. 


Micro level:  Within the city/town the location is equally important.  Proximity to the university, transport links, local amenities and nightlife need to be considered. 


What Is The Number Of Beds?


A basic but essential question.  This will be broken down into the number of studio’s or cluster apartments. Unsurprisingly studio apartments are more costly per bed than cluster apartments, where more tenants can be housed within the footprint of the scheme.  Lenders will want a projected cost per bed as part of their decision making process.  The number of beds coupled with the location of the site will also give an indication as to whether targeted occupancy rates seem achievable. 

Nomination Agreement Or Direct Let?


The way in which students are sourced to rent the accommodation comes down to two methods; nomination agreement or direct let.


Nomination Agreements are contracts between the developer and universities where there is a commitment from the university to provide a minimum number of students each year for a stated period, typically 5 years (although agreements can run for up to 25 years).  The university may then in return get a say in matters such as rent setting.  


This offers greater security than direct lets to the developers and requires less work on marketing the site to potential students. Naturally this wins favour with lenders as there is reduced risk given the guaranteed revenue for a given period.  As a result of these factors it is likely the scheme will forfeit a higher yield. 


Direct Let means that the developer lets directly to students.  This means that the developer will have to market, let and manage the site, albeit often through a management company. This can be time-consuming and comes with increased risk regarding occupancy percentages. The upside is that the yield is generally higher than nomination agreements.


The Cost Of Facilities Management


Assuming that the developer will not be managing the site themselves, an operator will need to be employed to manage the site.  In addition their track record will be taken into consideration by lenders as they will be responsible for delivering the day to day objectives of the project.  A poorly managed site will see a drop in occupancy. 


The Number Of Weeks Rental


Students tenancy agreements generally vary between 43 and 51 weeks.  Obviously this can have a big impact on revenue as, you could be without vital revenue outside of term time.  Committing students to 51 weeks rental is of course ideal, but should that not be achievable other revenue streams will need to be looked at.  Purpose built student accommodation  sites often let out the rooms for business conferences, festivals and sporting events.  The additional cost of marketing and filling occupancy will need to be taken into consideration. 


Experience Of The Developer


Lenders will naturally want confidence that the developer has the track record to deliver the scheme within timescales and budget.  This is particular pertinent for purpose built student accommodation  development as completion needs to coincide with the start of an academic year, meaning there isn’t the flexibility of other development schemes.

What Types Of Funding Are Available?


As with any forms of lending, rates will largely be determined on a case by case scenario.  However, through our range of specialist lenders we can secure the following:

  • Development finance up to 90% Loan To Cost (LTC)

  • 90% LTC stretched senior debt funding / 75% Loan To Gross Development Funding (LTGDV) (lower there of), keeping the transaction a pure debt proposition, rather than give away equity/profit share

  • Mezzanine finance up to 75% LTGDV

  • Hybrid mezzanine/equity for higher LTC’s

  • Joint Venture /Equity to sit on top of senior debt

  • PBSA term exit lending for completed schemes

  • Funding for stabilised and non stabilised completed schemes

How Can Montpelier Private Finance Help?


Our Knowledge - Purpose built student accommodation is a very specialist form of development finance that needs target knowledge.  Using our enviable insight into such projects we understand how best to position each proposition with lenders.  


Our Experience - We have vast experience in securing funding in purpose built student accommodation.  We have over time built up relationships with a wide number of lenders in the market that can offer preferential rates based on our experience.   We are able to support new entrants to the market as well as give the competitive edge to existing operators.


Our Reputation - We are well versed in the purpose built student accommodation market and are trusted by lenders to carry out thorough due diligence, meaning that when your application reaches them you are already at an advantage in successfully gaining your funding.

PBSA Funding Solutions

Funding available for both direct lets and nomination agreements

Preferred terms for Russell Group locations

Standard construction and modular propositions welcome


Development finance at 90% Loan to Cost (LTC)

90% LTC stretched senior debt funding / 75% Loan to Gross Development Value (LTGDV) (lower there of); keeping the transaction a pure debt proposition, rather than give away equity/profit share

Mezzanine finance up to 75% LTGDV

Hybrid mezzanine/equity finance for higher LTC's


Joint venture/equity to sit on top of senior debt

Commercial term exit lending for completed schemes

No maximum loan

See Also

Development Finance Explained

Want to understand more about what makes a successful development finance application? Here we look at the criteria that lenders use to asses applications and how Montpelier Private Finance can help you secure funding.

Commercial development construction site

Bridging Finance Explained

We explain the finer details of bridging finance, the criteria that lenders use to asses applications and how Montpelier Private Finance can help you secure funding.

Modern pedestrian bridge

Commercial Mortgages

Looking to understand more about commercial mortgages?  Here we break down the different types from buy to let to owner occupied finance.  We look at how lenders assess applications and how Montpelier Private Finance can help you obtain funding.  

Modern commercial office building

Case Study

MontpelierPF procured a £30m facility at 73.3% LTGDV for a state of the art 257 bed scheme in Edinburgh.  The scheme welcomes a new to UK modular construction provider. 


Case Study

Our client achieved achieved a gross advance of 103% loan to contract purchase price / 94% net for a Purpose Built Student Accommodation scheme (PBSA).  

University students studying in a group
View from balcony of a university atrium