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Rental yields starting to cool – Mortgages For Business

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  • 08/07/2015
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Rental yields starting to cool – Mortgages For Business
Landlords are earning less money per property, according to the Complex Buy to Let Index from Mortgages for Business.

The index found landlords owning semi-commercial property (SCP) were the biggest losers with yields falling from 7.5% in Q1 2015 to 5.9% in Q2 2015 – the lowest level in four quarters and a drop of 1.6 percentage points.

Landlords of houses in multiple occupation (HMOs) are also generating lower returns, dropping 1.3 percentage points to 9.3% between the first and second quarters of 2015.

Average yields for standard buy to let (BTL) have experienced a less marked decline, dipping from 6.4% in Q1 2015 to 5.8% in Q2 2015.

The only sector of the buy-to-let market to see yields rise in Q2 was multi-unit freehold blocks (MUFB), with average returns on that property type rising 0.8 percentage points between Q1 and Q2 2015 to 7.1%.

However, Q2 2015’s MUFB yield rate is still below the 8.6% and 9.3% returns experienced in Q3 2014 and Q4 2014 respectively.

David Whittaker, managing director of Mortgages for Business, said: “While rental yields are still robust they seem to have lost the momentum they were gathering between the end of last year and the start of this one.

“That said, multi-unit freehold blocks seem to have avoided the yield downturn, demonstrating once again that complex property types produce higher yields because they offer tenants more features and facilities.”

Mortgages For Business also reported a larger proportion of HMO loans for remortgaging with 90% of HMO mortgages being remortgages in Q2 2015.

The figure represents a 17 percentage point increase on Q1 2015’s percentage total and the largest proportion of any rental property type in four quarters.

The number of lenders offering buy-to-let mortgages increased from 31 to 32 between Q1 and Q2 2015. The figure represents the highest total in four quarters – at the start of Q4 2014 the number of lenders was just 28.

Landlords now have 861 mortgages to choose from, up from 839 in Q1 2015 and the largest number in four quarters.

“Remortgaging for HMOs has smashed through a glass ceiling, and it’s little wonder – the fantastic yields such properties have been offering landlords over the past year have been above the already stellar returns achieved by traditional buy to let,” said Whittaker.

“The number of lenders coming onto the market is also a promising sign – it shows there’s an increasing appetite for the buy-to-let market as people realise how much can be gained for relatively little pain.”

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