The index, which employed MFB data, showed that the average value of a vanilla buy-to-let (BTL) property in 2017 was £305,283 – a 19% decrease on the £375,409 average seen in 2016.
“These results suggest that landlords are seeking lower value properties and, anecdotally, we hear that they have been looking further north for their acquisitions where prices are cheaper,” said MFB.
“The benefits of this strategy include less stamp duty, future capital growth, and scope for rental increase which thus allow for slightly higher yields.”
Jeni Browne, sales director at Mortgages for Business, said: “Savvy landlords like to have a good mix of properties. They like the consistency of vanilla BTLs and the higher returns of more complex property types.”
The MFB index also revealed that houses in multiple occupation (HMOs) produced the highest BTL yields in 2017 – averaging 8.9% over 2017.
However, this is the first time that yields for HMOs have dipped below 9% since the beginning of the MFB index, which was launched in 2011.
Multi-units, such as blocks of flats, came second with yields of 8.1%, compared to 8.3% the year before.
Vanilla BTL properties, on the other hand, are generating lower – if more consistent – yields which averaged 5.6% in 2017.
“The attractiveness of HMOs as a BTL investment has increased in recent years – not only because of the higher yields on offer, but because serious investors are keener to diversify their portfolios,” said Browne.
She continued: “With more landlords vying for these properties, prices have been pushed up more quickly than the rents which, I would suggest, is one of the main reasons we are seeing their yields drop.
“Although, I suspect that the granting of fewer new HMO licences is also having an impact,” Browne added.
Furthermore, since the MFB index’s launch in 2011, BTL mortgage product numbers have risen 444% – a rise that MFB attributes to lenders responding to the growing popularity of BTL by offering a “seemingly ever-expanding” range of products.
Meanwhile, the number of lenders operating in the sector in Q4 2017 remained unchanged.
Browne commented: “Looking forward, it is widely anticipated that BTL lending will contract this year in response to the tax and regulatory measures being imposed on the sector.”
She continued: “As such, I would expect product numbers to peak in Q1 2018 and we have already seen some lenders trimming their ranges, leaving a core of great products which have been designed to reflect the changing needs of landlords.”