Rush to multi-unit BTLs sees loan values halve in five years

by: Carmen Reichman
  • 21/10/2016
  • 0
Rush to multi-unit BTLs sees loan values halve in five years
An investor run on high yielding buy to lets has seen the average loan value for multi-unit properties almost halve in the last five years, broker Mortgages for Business has found.

Multi-units – houses which contain multiple separate housing units – saw the average loan size drop from £528,000 in Q1 2011 to £254,000 in Q3 2016, according to the broker’s complex buy-to-let index.

Similarly, loan values on houses in multiple occupation (HMOs) – residential properties where common areas are shared by more than one household – went down from £318,000 to £261,000.

Mortgages for Business said the drop was an indication the market had become broader and more people were buying complex buy-to-lets at lower prices.

Head of marketing Jenny Barrett said: “Multi-units give you a higher yield than standard buy to lets. Once people started seeing those higher yields more investors moved into these complex property types. But fewer people were spending higher amounts. This can bring the average values down quite quickly.”

The broker’s figures showed the average property value for a freehold multi-unit in the first quarter of 2011 was £932,000, whereas this had come down to £458,000 in the third quarter of this year.

Average yields went up from 7.4% in 2011 to 8.7% in 2016. In the preceding quarter (Q2 2016), when average loan sizes were a mere £195,000, yields stood at an impressive 9.5%.

Mortgages for Business suggested the current market was defined by smaller, less expensive HMOs and multi-units being financed in areas of higher property prices as well as an increase in purchases of HMOs and multi-units in areas where property prices remain low.

The data did not reveal how many multi-unit and HMO products had been bought in the periods but it showed the average number of lenders had grown from 19 in 2011, which were offering a range of 298 products, to 33 and 1,120 products in 2016.

Government intervention

The rapid growth of the market arguably also brought with it some unintended consequences, which the government is intent on stamping out with a new range of policy measures proposed this week.

It said it wants to clamp down on rogues and overcrowding. Among other things it has proposed to extend the licensing regime and introduce a minimum requirement for the size bedrooms need to have.

Councils will also get more power to crack down on bad practices in their area.

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