Landlords are continuing to look for cheaper properties that deliver higher yields when making purchases of any property type, shows the latest Complex Buy-to-Let Index from Mortgages for Business.
An analysis of mortgages arranged by Mortgages for Business in the second quarter (Q2) of the year found that all types of buy-to-let properties purchased during the quarter had much lower values than the overall average.
These cheaper properties provide better returns on the landlord’s investment, with both House in Multiple Occupation (HMO) and multi-unit purchases achieving average yields of over 10.0%. Comparatively, these properties achieved yields of just 8.7% and 7.9% respectively when remortgage transactions were included.
Steve Olejnik, the COO of Mortgages for Business, comments on the findings: “Landlords have been selective with their purchases this quarter, choosing properties that maximise their income with minimal investment. This strategy is likely to remain common, as it allows landlords to maintain profitability while HMRC [HM Revenue & Customs] phases in restrictions on Income Tax relief for landlords.”
One consequence of this selectivity is that landlords have had to scale back their rate of expansion from last quarter. Q2 saw a drop in the proportion of buy-to-let purchase transactions compared to Q1, returning to the preponderance of mortgages that has become common in recent years.
Only semi-commercial properties experienced an increase in purchase activity, with sales now accounting for 67% of quarterly mortgage transactions for this property type. However, as a less common investment, this data set was considered too small to derive anything of significance.
Loan-to-value (LTV) ratios remained stable across the quarter, except for a modest (4%) drop amongst multi-unit properties, the index also revealed.
Landlords, are you one of the investors who’s been looking at purchasing cheaper properties that could deliver higher yields? What type of property are you considering?