UK landlords seeking more remortgages, buy to let index shows

Some 66% of buy to let loans in the UK in the first quarter of 2015 were for remortgaging compared with just 34% for new purchases, new research shows.

This compares with 62% in the final quarter of 2014, according to the latest Mortgages for Business Complex Buy to Let Index.

For houses in multiple occupation (HMOs) remortgaging is now an even higher proportion, standing at 73% of HMO mortgages in the first three months of 2015, up from 70% in the fourth quarter of 2014.

Moreover, the same trend is even more pronounced for multi-unit freehold blocks (MUFBs) with remortgaging representing 89% of mortgages in the first quarter of 2015 compared to just 42% in the final quarter of 2014. Semi commercial property witnessed the same trend but with a more gradual change, from 86% to 87% of new loans agreed for remortgaging.
As landlords have remortgaged in increasing numbers, their average loan to value ratios (LTVs) have crept slightly higher over the course of the last three months. For vanilla buy to let, the average LTV now stands at 66% compared to 63% in the final quarter of 2014.

Landlords of HMOs have seen loan to value ratios rise to 70%, up from an average of 64% LTV in the last quarter of 2014. Likewise, MUFB properties are now mortgaged to an average of 67% of the property value, up from 64% LTV in the final quarter of 2014.

Semi commercial properties saw a more gradual shift, though for these landlords the average LTV also rose from 64% in the previous quarter to 65% in the first quarter of 2015.

‘Record low mortgage rates are driving wave upon wave of landlords to reassess their finances. A great deal agreed last year may be uncompetitive by today’s standards. So this stampede is completely rational as it represents a charge by landlords to make the most of an unprecedented economic situation,’ said David Whittaker managing director of Mortgages for Business.

‘Remortgaging is often done for the purposes of raising extra capital, and this is clearly reflected in higher loan to value ratios. However, this is by no means an unwelcome trend and could in turn open the door to more new purchases and investment by landlords,’ he explained.

‘Rental yields are healthy and there is a gathering demand from an increasingly prosperous base of tenants. So the fundamentals of the rental market, and of landlords’ finances, are still extremely solid,’ he added.
The report also shows that for standard vanilla buy to let property, gross yields have now risen to 6.4% in the first quarter of the year up from 6.3% in the last quarter of 2014. On a similar note, gross rental yields on HMOs have now broken through the ten per cent mark to stand at 10.4%, up from 9.0% in the fourth quarter of 2014.

Semi commercial property has also seen yields grow, from 6.4% to 7.5% in the first three months of the year. However for MUFB properties the average rental yield has dipped to just 6.3% in the first quarter, down from 9.3% in the fourth quarter of last year.
‘Landlords are reporting a buoyant rental market, driven in large part by a resurgent jobs market and now even more encouraging signs on wages. In turn, this will stimulate many landlords to invest further although one major hold up in an otherwise sunny outlook is a long shadow of political uncertainty,’ said Whittaker.

‘This is only partly about specific policies. For example rent controls could be a well-intentioned but disastrous blow to the industry. However, more of an immediate worry is the far more general risk of a power vacuum after an election barely three weeks away, the associated effect on the financial markets and ultimately on mortgage rates,’ he pointed out.

‘In the meantime, we are still seeing strong interest in the finance to support more complex buy to let investments. Right now, houses in multiple occupation are particularly popular with landlords searching for a better rental yield but today’s record low mortgage rates are proving of enormous benefit to all types of landlord,’ he concluded.