PBSA: The funding landscape

By Kimberley Gates, Director of Client Partnerships at Karis Capital

As with any asset class in the property sphere, there are a multitude of options when it comes to funding.

Private investment in the purpose-built student accommodation (PBSA) sector has risen exponentially over the past five years, with total investment in the space reaching over £3bn in 2024 (according to data from Savills) – a 13% increase from 2023.

There are multiple factors at play that are contributing to this rise, including returning students to campuses, the sector’s resilience to market fluctuations compared to other property asset classes, and the opportunity for stable, long-term returns due to regular demand and increasing requirements.

However, as with any asset class in the property sphere, there are a multitude of options when it comes to funding and it is essential to stay ahead of the curve to ensure that any investment or project can reach its full potential.

Here is an in-depth look across the PBSA funding landscape and how Karis Capital can help navigate this buoyant sector:

Renters Reform

At Karis Capital we have arranged funding for a significant number of student HMOs (House of Multiple Occupation) in recent years, but the Renters Reform Bill may present an opportunity for PBSA and a shift in lender appetite towards high-quality student focused developments. Key points to consider from a funding perspective:

• A shift to periodic tenancies (students leaving with just 2 months’ notice) could create pressure on HMOs and drive further demand to PBSA alternatives.
  • PBSA is expected to be exempt as long as providers meet criteria such as registration under an approved code, which would make the sector a more enticing prospect from a lifestyle and monetary perspective, as well as a more secure investment.
  • The likely outcome from this is a higher demand for PBSA developments (particularly affordable stock) as students and investors seek stability and a guarantee of quality.

Funding impact: While it’s too early to say appetite has changed, lenders are already discussing this internally. PBSA’s relative stability could draw more private wealth and institutional funds as the detail becomes clearer and growth predictions could rise further as a result.

Funding Gateway 2

The introduction of the Gateway process under the Building Safety Act has reshaped the development timeline for many UK residential schemes, with Gateway 2 in particular proving a costly pressure point.

As most in the sector will know, the three Gateways were introduced post-Grenfell to embed building safety into every stage of a scheme. Gateway 1 at planning, Gateway 2 before construction starts and Gateway 3 at final completion and occupation.

Gateway 2 front-loads costs, creating a funding gap between planning and breaking ground. Key points to consider from a funding perspective:

• Most student schemes trigger Gateway 2 due to height/complexity, making delays and costs especially acute.
• Missing an academic year start date can undermine viability and impact lender confidence.
• Some institutional debt and forward-funding deals are returning, but confidence remains patchy until the process becomes more predictable.
• Mainstream challenger banks are becoming more competitive. in Q3 2025, we’ve seen term deals up to 75% LTV and fixed rates as low as 5.8% for lower LTVs.
• Larger operators can absorb costs with deep equity/OpCo-PropCo models, whilst smaller developers lean on debt solutions, such as standalone Gateway loans, bridge-to-develop facilities, or one-lender packages rolling through Gateway 2 and into the build phase which is proving to be a popular conversation with our clients facing this challenge currently.

Funding impact: Credit committees are focusing on borrower liquidity, robustness of applications, and clarity of exit, so more work is required to secure the best funding options available. Our team is spending a lot of time working through assets and liquidity to achieve the best deals, which at times can be complex in nature.

Basel 3.1(2027 Reforms)

Basel 3.1(aka the final Basel Ill reforms), which is due to be implemented from 2027, will require banks to hold more capital against higher-risk loans including development, specialised lending and operationally complex assets like PBSA – making these points crucial to consider when sourcing appropriate funding:

• Margins could edge up as banks’ cost of funds increases.
  • LTVs may tighten, with stronger equity input required.
  • Greater scrutiny of exits, stabilisation assumptions and university demand are all likely with longer diligence times across the board.
  • Experienced operators with proven occupancy will be favoured over new ventures.
  • Location of student accommodation will matter even more with higher demand universities attracting better terms.
  • Developers will need to demonstrate liquidity and robust pre-leasing to win confidence from lenders or they could face higher premiums.
  • Many non-bank lenders who aren’t bound by Basel will not be affected and whose typically more expensive pricing will start to look more attractive in comparison to banks.
  • It is worth noting that many specialist lenders in the PBSA space are partially funded by banks with this being the source for several key funding lines. Thus, there will likely be knock-on effects and price increases creeping through for many across the board.

Funding impact: Lenders impacted by banking rules are likely already running Basel-adjusted models internally, slowly shifting exposure to lower-risk PBS and building in pricing cushions ahead of 2027. Basel 2027 won’t block PBSA lending, but bank debt will become more selective and slightly pricier. Therefore, strong schemes with credible partners will still cut through and pros still outweigh the cons when it comes to investing in a thriving

Tenant demand

The UK remains pro-international students and retains post-study work rights, underpinning demand, with growth in the student population since 2020 accredited to increases in overseas students on postgraduate taught courses. According to data on Gov.uk, in 2023/2024 there were 2.9 million students at UK higher education institutions, whilst there were 758,000 applications for full-time undergraduate places through UCAS in 2024, up by 500 on 2023.

This demand from overseas, as well as a constant flow of domestic students has led to predictions of further growth in the sector, as demand continues to outstrip supply across the UK. Key points to consider include:

• Leasing velocity has slowed slightly, but both international mobility and domestic undergrad numbers continue to rise, which demonstrates a level of demand that will continue to outstrip supply for years to come.
  • Slower lease-ups are driving lenders to insist on pre-let evidence and sometimes bridge-to-term structures, which can be more complicated but with high demand levels a straightforward process to navigate.

Funding impact: Lenders are positive on PBSA linked to globally ranked universities and are offering favourable lending options. Where overseas demand is strong, they’ll stretch leverage or sharpen pricing, whilst credit committees want conservative stress-testing of NOi projections to satisfy their requirements. Essentially, whilst demand levels are high PBSA remains a favourable prospect for lenders who are confident in the current robustness of the sector.

PBSA/Build to Rent/Co-Living triangle

The three sectors are converging, but each serves different emotional and functional needs – particularly around safeguarding, demographics and community. Lenders are ring-fencing mandates where many will back PBSA but not mixed-age Co-Living with a student element due to reputational risk in mixing demographics and potential safety issues for young students. Key points to consider from a funding perspective:

• Branding and hospitality-led models can significantly improve lender appetite, but not always the rate offered.
  • For developers, clear structuring under a single ‘badge’ broadens the lender pool. Strong, recognisable brands (e.g. Unite, iQ, Vita) give lenders comfort because they’ve got proven lease-up velocity, higher occupancy resilience, and a strong operational track record.
  • Hospitality style offerings also translate into lower churn and, therefore, a steadier lower perceived risk investment. Both are particularly useful for sites outside of the main city where a strong brand pull might be required to attract students, which could be the difference between getting funding and not.
  • For smaller or newer entrants, partnering with a branded operator can help persuade cautious lenders by providing a trusted ‘guarantor’.
  • OpCo/PropCo strategies are proving attractive, diversifying risk and tapping into different pools of capital for each entity.

How we can help

Whilst it is clear the PBSA sector is enjoying a spell of renewed confidence, as with any investment class there are always risks and pitfalls, which is why, when possible, it is important to work with a specialist advisory to ensure you are ahead of the curve and ready to meet any challenges head on or take any opportunities that arise.

As well as an experienced debt advisor, engaging valuers, lawyers and operators who truly understand PBSA protects both borrower and lender as much as possible. The insurance is also a frequently overlooked part that can cause unforeseen delays which is why Karis involve our insurance arm early knowing Lenders frequently require insurance in place upfront.

Karis Capital is a leading specialist real estate debt and insurance advisory firm guiding UK property developers and investors to the best solutions in the market and leveraging extensive relationships with funds, family offices, private capital, boutique banks and specialist lenders.