The index found that HMOs returned an average yield of 10.2%, up from 9.1% in Q4 2015 and compared to an average yield of 5.8% on vanilla buy to let in Q1.
The number of tenants looking for less expensive accommodation and more landlords wanting to enter the market had an impact on purchase numbers, which rose to 56% in Q1 from 24% in Q4 2015, the report found.
However, the average property value decreased significantly, from £309,458 to £295,832 in the quarter, which may be due to more investors purchasing property outside London.
David Whittaker (pictured), managing director of Mortgages for Business said: “With tenants looking for less expensive accommodation and landlords looking for higher yields it is no surprise that the number of HMO purchases has risen in the last quarter.”
The introduction of more products targeted at limited company borrowers saw the average product numbers for buy-to-let mortgages increase significantly in Q1 2016, rising to 1,105 from 963 in Q4 2015, yet for the third quarter in a row, no new lenders entered the buy to let market.
The results for Q1 also revealed that remortgage transactions remained at higher levels to purchase numbers, particularly on semi-commercial properties, with 90% of all lending in this area in remortgaging.
“Even though remortgage transactions were higher, this is not to say purchase numbers were down”, said Whittaker.
“All types of residential investment showed a marked increase in the number of purchase transactions as investors rushed to beat the 3% stamp duty surcharge deadline,”he added.
Yields for semi-commercial property also rose in Q1, to 8.1% from 7.7% in Q4 2015, making it the second highest yielding property type. The report stated that more landlords are expected to enter this sub-sector in the coming months as mixed use properties are technically classed a commercial premises and, as such, will not be liable for the stamp duty surcharge.