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MOST would-be undergraduates have now discovered if they have won the college place of their dreams. For many parents, however, a different university challenge looms: to find a property that will not only be a home for their child – and his or her mates – during their college years, but also be an investment with high potential for profit. This is why some parents begin studying the market in a university town or city months before the beginning of the academic year. As the beginning of the autumn term 2007 begins, mothers and fathers are doing their sums extra carefully: rising interest rates have made mortgage repayments more expensive, and in some locations rents are not covering these outgoings.

The search always starts early in Durham. “We had parents coming in at Christmas looking for properties for this new university year. They have all done their homework into rental costs and the type of property they need. The part we help them with is location,” says Stuart Edwards, the managing director of Stuart Edwards estate agents in Durham. By the time the sale goes through the child has found fellow students to take the other rooms, and the lucrative rents allow the investors’ child to live rent-free. Peter Benson, the director of Humberts East Midlands, says: “Rents in popular student areas in Nottingham, like Dunkirk and Lenton, can fetch £70 per week per room. Rent out three rooms and that is just under £1,000 a month.”

Research by Halifax indicates that 20 university towns have recorded house-price increases of more than 20 per cent in the past year alone. These gains are not just the result of the runaway performance of property across many parts of the country: the price of homes in these towns rose by an average of 11 per cent more than those in the surrounding areas.

The growing demand for more and better student accommodation is helping to fuel the huge interest in buy-to-let investment in university towns. Lenders are encouraging the rush to invest with custom-made “family-friendly” mortgages that allow properties to be let to family members. Bryant Homes, the developer, even has a website on which parents can “search all Bryant’s new homes developments in close proximity to universities all over the country”.

But take care: the commitment to buy, even after deposits and legal fees have been found, can be more expensive than many expect and the prospects of rental income covering the cost of buying vary enormously across the UK. Detailed research by the buy-to-let broker Landlord Mortgages – For full list click here – shows that the parent-owners of a three-bedroom terrace property in Edinburgh (worth an average of £311,015) would need to make up a shortfall of £17,746 over three years, between the £45,285 in mortgage repayments that would fall due and the £27,539 they could expect in rent. The average shortfall on a similar property would be £9,157 in Oxford, or £5,747 in Bath. But in Durham parents can expect to take £13,118 more in rent than the £9,936 they would need to repay on a £69,773 average terrace property. Parents who buy can expect a rent-over-repayment bonus of £9,181 in Nottingham or £7,824 in Manchester.

Those willing to take a bet that property prices will continue to rise may be willing to pay more now in the hope of a profit later. If house prices rise at 5 per cent a year, a parent might expect to sell an Edinburgh home in three years time for £49,024 more than they paid, or £10,998 in Durham.

Until now, parents have tended to sell the property once their child has completed university, taking a tidy profit that they can use to help their child to buy their first home. Figures out this week from Alliance & Leicester Mortgages show that those parents who help their adult child to buy a home of their own contribute an average of £21,314. Lyndsey Robison is about to buy her first home in Newcastle, using a deposit part-funded with the profit made on the £48,000 student home that her parents bought when she began at Sunderland University in 2002. She says: “I was thinking about renting, but we worked out it would be cheaper for Mum to buy.” Robison has helped with the mortgage payments on the terraced property seven miles from her family home since finishing her degree in 2005. The house is now valued at £96,995.

Peter Benson, of Humberts, says children commonly move on, even if they continue to live in the city in which they studied: “As they mature, a student area is not so appealing.”

Stuart Edwards says: “We already have cases of students’ parents selling to other students’ parents.” But as the market softens, investors should make plans in case they cannot sell quickly at a profit. Lee Grandin, of Landlord Mortgages, says the most successful investors are those who take a long-term view: “Once your child has finished studying you can keep the property and continue to let to students. It is a good way to enhance your pension.”

Do the sums add up? See the full Landlord Mortgages calculations at: timesonline.co.uk/property

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