Multi freehold blocks provide highest gross yields in UK for landlords

Multi-unit freehold blocks have overtaken houses in multiple occupation and now provide UK landlords with the highest gross yield at 9.3%, new figures for the fourth quarter of 2014 show.

This compares to 8.6% in the third quarter and is the highest yield on record for this property type, according to the latest complex buy to let index from Mortgages for Business.
 
Houses in multiple occupation (HMOs) saw rental yields rise to 9% in the fourth quarter of 2014, from 8.9% in the previous quarter, slightly lower than the yields recorded earlier in the year where HMO yields stood at 9.6% in the first three months of the year.

However, the index report points out that compared to vanilla and semi-commercial property, houses in multiple occupations still provide one third more than standard buy to let investment. 
 
The only exception to this trend is semi-commercial property which saw yields fall to 6.4% from a high of 9.7% in the third quarter.
 
Gross yields on vanilla buy to let properties have returned towards the levels seen in early 2014. For a standard buy to let property the equivalent figure is now 6.3%, up from 5.9% in the third quarter.
 
‘Rental yields for HMOs and MUFBs are typically higher than those for vanilla buy to let. For a multitude of reasons, not least stagnant wage growth for half a decade, many tenants simply can’t afford an enormous flat with a spare bedroom. As such, the attraction for many of renting a room rather than whole property will ensure that there is a steady yield-boosting demand for HMOs over 2015,’ said David Whittaker, managing director of Mortgages for Business.

Across all types of buy to let property landlords have seen loan to value ratios (LTV) fall. The average LTV on a vanilla buy to let mortgage in the fourth quarter was 63%, considerably down from 68% in the previous quarter.

Loan to value ratios for HMOs have fallen the most, from 71% in the third quarter to 64% in the fourth quarter, while both multi-unit freehold blocks and semi-commercial properties have fallen by four percentage points each to 64% average loan to value in the fourth quarter.
 
‘While property prices have slowed a little in recent months, landlords have on the whole seen enormous price growth compared to the indecisive direction of property prices a few years ago,’ explained Whittaker.

‘Looking ahead, this might spur some landlords to expand their existing portfolios further and diversify as a result of the high yields on non-standard properties,’ he added.