Pictured above: Iain McArthur

Earlier this month the government announced it had pushed through plans which will allow universities to charge up to £9,000 per year in tuition fees. 

Iain McArthur, Associate Director in Residential Valuations at DTZ in Birmingham, gives his thoughts on the impact the increase in student tuition fees will have on the West Midlands residential market:

"The West Midlands is a significant educational centre accommodating around 167,000 students across the region in nine universities and numerous colleges. The announcement that universities will be able to charge tuition fees of up to £9,000 per year from 2012 will have real implications for the region's residential housing market.

"The region has been one of the hardest hit by the economic downturn. The housing market has been exposed to large price falls, partly due to large scale developments many of which have struggled to sell and, as a result, have had to be significantly discounted to attract attention.    

"During the housing peak, these starter homes attracted the first time buyer market, however this situation is likely to change considerably as student tuition fees increase.

"A student completing a three year course is likely to leave university with around £30,000 to £40,000 worth of debt, including fees, accommodation and subsistence costs. 

"On leaving university, a post graduate first time buyer faces the prospect of having to save approximately 45% of their monthly net income for five years in order to afford the £37,000 deposit needed to buy an average starter home, according to a report published by The Home Builders Federation.

"Larger student debts will, inevitably, restrict mortgage lending criteria to post graduate first time buyers. Students with a large amount of debt will be forced to either repay the debt first or accept that mortgage providers will reflect this in their lending criteria.

"Lower loan to values together with high unemployment, public sector job cuts and pay freezes mean the outlook for new graduates to get on to the housing ladder, without any financial support from parents or family, is bleak. 

"First time buyers are the engine of the housing market as their purchases feed through the chain to higher value properties. An increase in the average age of post graduate house buyers will impact the entire residential market and may hinder the UK's road to recovery by escalating personal debt at a time when the government is desperately trying to reduce the deficit. 

"That said, current market conditions provide an opportunity for the private investment sector to capitalise on the growing rental market, in fact a recent study by the LSL property index found that rental prices have hit a new high of £692 per month. Potential gross yields for private investors are achievable at 6.5% to 8.5% making this a very attractive investment opportunity which is well ahead of commercial property yields."