According to the latest Mortgages for Business Complex Buy to Let Index gross yields on vanilla buy to let properties have dropped to 6.3% in the second quarter of the year, down from 6.4% in the first three months of 2014.
This comes as modest rent rises have been outstripped by rapid growth in property values. But houses in multiple occupation (HMOs) saw gross yields of 9.3% in the second quarter of 2014. While this is also down slightly from the 9.6% recorded in the first quarter, the gross yield remains around 50% higher than for vanilla properties.
Multi-unit freehold blocks (MUFBs) also offer a premium compared to standard buy to let investments, the data shows. In the second quarter these properties commanded an average gross yield of 7.3%, almost a full percentage point higher than vanilla yields.
The index shows that landlords with standard buy to let properties have remortgaged at a record rate in the second quarter. Remortgaging now represents 70% of new vanilla buy to let mortgages. This compares to 65% in the first quarter of 2014.
By contrast, new purchases make up an increasing proportion of activity for more complex properties, as landlords increase their exposure to a wider variety of property types. In the second quarter of 2014 some 31% mortgages for multi-units were for new purchases, up from 19% in the first quarter. Meanwhile, 28% of loans secured against HMOs are now for new purchases, compared to 25% in the first quarter of the year.
This comes as the choice of buy to let mortgages has reached a record high, with an average of 637 different products available to UK landlords in the second quarter of 2014. Compared to the previous quarter, when landlords had a choice of around 586 mortgages, this represents growth of 8.7%. On an annual basis this leaves the number of buy to let mortgage products 37% greater than in the second quarter of 2013.
As prices have risen, loan to value ratios have dipped. The average LTV on a vanilla buy to let mortgage in the second quarter was 67%, down from 69% in the previous quarter. Loan to value ratios for HMOs have also fallen, now standing at 70% compared to 72% in the first quarter, while loan ratios for MUFBs are steady at 66%.
‘Within the space of six months the UK property market has seen a rising tide of optimism translate into steadily rising property prices. But with the ying of capital appreciation, landlords are also facing the yang of a dip in rental yields as rent rises have not kept up with increases in purchase prices,’ said David Whittaker, managing director of Mortgages for Business.
‘Landlords are now looking more carefully at their portfolios and their financial situation. With signs that price rises may start to cool and in light of potential interest rate rises, an intelligent and diversified approach is sensible rather than simply racing to expand as fast as possible. This is good news, as landlords show the prudence that regulators and central bankers would surely wish for,’ he added.
