Number of BTL Products Doubles 06.04.2011
The number of buy to let mortgage products in the market has more than doubled over the last year according to the latest Complex Buy To Let Index from Mortgages For Business, the specialist mortgage broker.
In Q1 2010, an average of 142 products were available to buy to let investors. This figure has more than doubled to an average of 298 products in Q1 2011. This rise is due in part to the entrance (or re-entrance) of four mortgage lenders to the market but can be attributed mainly to lender response to high demand from the investor market and an easing of lending criteria which has allowed for more diverse product ranges.
Average LTVs for vanilla buy to let transactions are now at 66%, three percentage points up (63%) from the end of 2010 and six percentage points up (66%) from the end of 2009. There has also been an easing of criteria for Houses in Multiple Occupation (HMO) transactions. Average LTVs for these mortgages are now 63% compared to 61% at the end of 2010.
Complex BTL transactions provide the highest yields for investors and yield growth has been strong over the first quarter of 2011. HMO transactions now provide an average yield of 9.3% compared to 8.7% at the end of 2010 and Multi-unit Freehold Blocks (MUFB) now yield 7.4% compared to 5.3% in 2010.
David Whittaker, managing director at Mortgages for Business, commented:
“As the owner-occupier market continues its slow ambling advance through no-mans land the private rental sector is flourishing. Unprecedented demand from renters is encouraging professional landlords and investors to grow their portfolios and this demand has been met to some degree by lenders expanding their BTL product ranges, particularly in the vanilla section of the market.
“But savvy investors know the best returns are available from more complex deals. House of multiple occupancy and multi-unit freehold deals can offer yields of nearly 10% which is a staggering return on investment when you compare it to the meagre returns offered by savings and investment funds.”
Philip George, joint managing director of Whiteaway Laidlaw Bank, welcomes the launch of the index saying:
“This data analysis is timely for our launch on Thursday 7th April and adds to our database in sectors that will be important to our diverse new lending programme. We look forward to working with Mortgages for Business on this initiative and will compare our own data carefully with their outputs into Q2 and beyond.”
Vanilla Buy to Let Mortgage Transactions
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Vanilla Buy to Let Mortgage Transactions
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2009
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2010
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Q1 2011
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Average loan size
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£96,500
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£120,250
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£116,238
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Average property value
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£154,300
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£190,000
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£175,819
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Average loan to value
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60%
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63%
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66%
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Average yield
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4.70*
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4.75%*
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5.6%
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Source: We could find no published data for these years. ARLA’s last published figure was 4.66% in Q1 2008. We have estimated a slight year-on-year rise based on demand for rental properties continuing to outstrip supply. Going forward this information is recorded on our database.
Vanilla BTL: The slight reduction in loan size in Q1 2011 is offset by the increase in loan to value which now stands at 66 per cent. It is also interesting to note that the average property value has dropped by nearly £25,000 and while it cannot be determined as a downward trend, it does suggest a general easing of market conditions particularly as yields are definitely on the rise. The proportion of purchases versus remortgages (see table below) is split evenly as we have seen many landlords remortgage to fund further property purchases.
Houses in Multiple Occupation
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Houses in Multiple Occupation (HMO)
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2010
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Q1 2011
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Average loan size
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£287,800
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£317,907
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Average property value
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£469,000
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£501,290
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Average loan to value (LTV)
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61%
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63%
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Average yield
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8.7%
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9.3%
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HMO: A 10 per cent increase in loan size is offset somewhat by the higher property value; the adjusted increase is approximately four per cent and is also reflected in an increased yield supporting a marginally higher level of debt at 63 per cent loan to value. Interestingly the number of purchases versus remortgages is substantially higher at 67 per cent. This could be for a variety of reasons such as an increase in finance options; more properties being classified as HMOs; or more HMOs coming onto the market as some landlords look to offload increasingly regulated properties. In the next quarter we will also start to report on the number of rooms per HMO.
Multi-Unit Freehold Blocks
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Multi-unit Freehold Blocks (MUFB)
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2010
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Q1 2011
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Average loan size
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£470,900
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£527,902
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Average property value
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£828,050
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£932,148
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Average loan to value (LTV)
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57%
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56%
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Average yield
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5.3%
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7.4%
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MUFB: While loan amounts and property values have increased, the average loan to value has decreased slightly. However, yields are closer to expectation - up 2.1 percentage points (40%) since last year. Interestingly 59% of transactions were remortgages which lends weight to anecdotal evidence that some banks are looking to offload their non-core property exposure, by insisting that some investors look elsewhere for funding. In the next quarter we will also report on the number of flats within each freehold block.
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Purchases versus Remortgages Q1 2011
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Purchase %
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Remortgage %
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Vanilla BTL
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50%
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50%
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HMO
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67%
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33%
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MUFB
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41%
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59%
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