Yields down but appreciation up, says MfB

Rising property prices are causing an about-turn in rental yields, according to Mortgages for Business.

Its latest Complex Buy to Let Index shows that gross yields on standard vanilla' buy to let properties have dropped to 6.3 per cent in the second quarter, down from 6.4 per cent in the previous quarter. Although there have been modest rent rises, these have been outstripped by rapid growth in property values.

More complex buy to let properties still command considerably higher yields. Houses in multiple occupation, for example, saw gross yields of 9.3 per cent in Q2, although this also shows a slight drop from the previous quarter's 9.6 per cent.

Meanwhile multi-unit freehold blocks commanded an average gross yield of 7.3 per cent in the most recent quarter.

The Mortgages for Business survey also shows a record level of remortgaging for landlords with standard buy to let properties with remortgages now accounting for more than two-thirds of all vanilla buy to let mortgage activity.

By contrast, new purchases make up an increasing proportion of activity for more complex properties, as landlords increase their exposure to a wider variety of property types.

This comes as the choice of buy to let mortgages has reached a record high, with an average of 637 different products available to UK landlords in the last quarter - up from 586 the previous quarter.

As prices have risen, loan to value ratios have dipped. The average LTV on a vanilla buy to let mortgage in Q2 was 67 per cent down from 69% in Q1. Loan to value ratios for HMOs have also fallen, now standing at 70 per cent compared to 72 per cent in the first quarter, while loan ratios for MUFBs are steady at 66 per cent.