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Mortgages for Business Complex Buy to Let Index Q1 2015

Landlords remortgage at twice the rate of new purchases

Remortgaging now accounts for two thirds of all buy to let mortgage transactions, according to the latest Mortgages for Business Complex Buy to Let Index.

  • Two thirds (66%) of buy to let loans are now for remortgaging – just 34% for new purchases
  • Trend even clearer for more complex property types – remortgaging now 73% of HMO loans
  • Loan to value ratios (LTVs) rise across all property types as landlords leverage their portfolios
  • Rental yields rise to 6.4% for standard BTL properties, while HMO yields break through 10%

In the first quarter of 2015, 66% of mortgages against standard or ‘vanilla’ buy to let property were remortgaging loans, leaving just 34% of buy to let mortgages written in Q1 for the purposes of purchasing new properties. Previously, remortgaging represented only 62% of vanilla buy to let mortgages as little as three months ago, in Q4 2014.

For houses in multiple occupation (HMOs) remortgaging is now an even higher proportion, standing at 73% of HMO mortgages in Q1, up from 70% in Q4 2014.

Moreover, the same trend is even more pronounced for multi-unit freehold blocks (MUFBs) with remortgaging representing 89% of mortgages in Q, compared to just 42% in the final quarter of 2014. Semi-commercial property witnessed the same trend but with a more gradual change, from 86% to 87% of new loans agreed for remortgaging.

Loan to value ratios rise

As landlords have remortgaged in increasing numbers, their average loan to value ratios (LTVs) have crept slightly higher over the course of the last three months. For ‘vanilla’ buy to let, the average LTV now stands at 66% in Q1 2015, compared to 63% in Q4 2014.

Landlords of HMOs have seen loan to value ratios rise to 70%, up from an average of 64% LTV in Q4 2014. Likewise, MUFB properties are now mortgaged to an average of 67% of the property value, up from 64% LTV in the final quarter of 2014. Semi-commercial properties saw a more gradual shift, though for these landlords the average LTV also rose from 64% in the previous quarter to 65% in Q1 2015.

David Whittaker managing director of Mortgages for Business, comments: “Record low mortgage rates are driving wave upon wave of landlords to reassess their finances. A great deal agreed last year may be uncompetitive by today’s standards. So this stampede is completely rational – it represents a charge by landlords to make the most of an unprecedented economic situation.

“Remortgaging is often done for the purposes of raising extra capital, and this is clearly reflected in higher loan to value ratios. However, this is by no means an unwelcome trend – and could in turn open the door to more new purchases and investment by landlords.

“Rental yields are healthy and there is a gathering demand from an increasingly prosperous base of tenants. So the fundamentals of the rental market – and of landlords’ finances – are still extremely solid.”

Rental yields rising

For standard ‘vanilla’ buy to let property, gross yields have now risen to 6.4% in Q1, up from 6.3% in the last quarter of 2014. On a similar note, gross rental yields on HMOs have now broken through the ten per cent mark to stand at 10.4% in Q1, up from 9.0% in Q4.

Semi-commercial property has also seen yields grow, from 6.4% in Q4, to 7.5% in Q1 2015. However for MUFB properties the average rental yield has dipped to just 6.3% in the first quarter, down from 9.3% in Q4 last year.

David Whittaker concludes, “Landlords are reporting a buoyant rental market, driven in large part by a resurgent jobs market – and now even more encouraging signs on wages.

“In turn, this will stimulate many landlords to invest further although one major hold-up in an otherwise sunny outlook is a long shadow of political uncertainty.

“This is only partly about specific policies. For example rent controls could be a well-intentioned but disastrous blow to the industry. However, more of an immediate worry is the far more general risk of a power vacuum after an election barely three weeks away, the associated effect on the financial markets – and ultimately on mortgage rates.

“In the meantime, we are still seeing strong interest in the finance to support more complex buy to let investments. Right now, houses in multiple occupation are particularly popular with landlords searching for a better rental yield – but today’s record low mortgage rates are proving of enormous benefit to all types of landlord.”

>> View results from our Complex Buy to Let Index Q1 2015