NEWS
Buy to let yields rise in the UK as property prices fall
19-10-2012
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Gross yields on complex buy to let property in the third quarter of 2012 rose on all property types apart from semi-commercial, according to the Mortgages for Business Complex Buy to Let Index. The driving factors behind the increase were a combination of falling property prices and high tenant demand.
Yields on vanilla buy to let increased from 6.1% to 6.7% over the quarter, thanks largely to the average property value of vanilla investments falling by 3% between the second and third quarter.
This helped push up the average LTV up from 64% to 68%, with lenders more willing to grant higher LTV deals thanks to lower property prices.
Similarly, Houses in Multiple Occupation (HMOs) saw yields jump from 9.2% in the second quarter to 11.1% in the third quarter. This was triggered by a sharp increase in refinancing of cheaper HMO property, as these lower value properties tend to have a higher yield than more expensive properties.
The average property value in HMO deals fell 41% compared to last quarter as more investors refinanced on properties under £200,000, with the launch of Keystone buy to let range offering investors a wider range of financing options on cheaper property.
Yields on Multi-Unit Freehold Block (MUFB) property rose for similar reasons. Gross yields increased from 7.5% to 8.8% as average property values in MUFB deals decreased by 33% from £442,223 to £297,938.
Bucking the market trends was semi-commercial property, where gross yields fell from 7.4% to 7.1% between the second and third quarter, despite the average property value falling by 26% from £1,054,913 to £779,761.
Average loan sizes remained relatively flat, with lenders like RBS group asking investors to refinance elsewhere as they look to reduce their exposure to SCP property.
The number of lenders operating in buy to let remained at 25, while the number of products increased marginally to 465 from 456 in the second quarter, suggesting the market has found some stability following its recovery from the financial crash.
‘The owner occupier market is sinking deeper into the mire, and is dragging property prices down with it. It is great news for buy to let investors, who are able to snap up cheaper property, usually at a higher LTV because lenders are understandably willing to advance more when property prices are lower,’ said David Whittaker, managing director of Mortgages for Business.
‘It’s a fairly simple equation: suppressed property prices, plus strong demand for rented accommodation, equals higher yields for landlords. Investors are being canny and targeting areas where house prices are particularly squeezed. Anywhere outside the south-east is a particularly rich seam at the moment,’ he explained.
‘There are also a wider range of products available for HMOs thanks to the Keystone Buy to Let range, which has helped more investors get finance on higher yielding property,’ he added.
