Rising yields disguise buy to let market

Landlords are picking up increasing yields from their buy to let portfolios – but the rising figures are masking the real state of the market.

Yields – the return on investment – for landlords are a measure of how well a letting property is performing in the market.

A high yield generally points out a property that is paying well – but falling house prices are corrupting the figures.

Although yields have increased from 6.1% to 6.7% on buy to let homes over the last quarter, the rise is mainly down to falling house prices, according to a survey for brokers Mortgages for Business.

Property values have slipped back an average 3% in the three months to the end of September.

The research also showed house in multiple occupation yields jumped from 9.2% to 11.1% during the same period.

“The owner occupier market is sinking deeper into the mire, and is dragging property prices down with it. It is great news for buy to let investors, who are able to snap up cheaper property, usually at a higher loan to value because lenders are understandably willing to advance more when property prices are lower,” said David Whittaker, the firm’s managing director.

“It’s a fairly simple equation: suppressed property prices, plus strong demand for rented accommodation, equals higher yields for landlords. Investors are being canny and targeting areas where house prices are particularly squeezed. Anywhere outside the south-east is a particularly rich seam at the moment.”

Meanwhile, the property investment mortgage market is reasonably stable, with 25 lenders offer around 450 products.

HMO investors will find a relatively narrow market – with lenders limited to single figures.

Kent Reliance is one of the lenders leading the buy to let mortgage field – offering 85% LTV landlord loans.

Average LTVs remain low, at 68% of property value.

Royal Bank of Scotland is continuing to make waves for landlords by asking landlords to refinance to other lenders to reduce the bank’s exposure to semi-commercial property – generally with shops with flats above.

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