In the last 12 months, the proportion of landlords refinancing Houses in Multiple Occupation (HMO) has jumped from 55% in Q4 2011 to 80% in Q4 2012. Similarly, remortgaging on Multi-Unit Freehold Blocks (MUFB) has increased from 76% to 78% year on year.
In particular, investors have been remortgaging lower value HMO property, which has reduced the average loan size on HMOs compared to 12 months ago.
David Whittaker, managing director of Mortgages for Business explains: “Gross yields on buy to let property are particularly attractive at the moment thanks to the mess which the first-time buyer market finds itself in. Property prices are flat and tenant demand is stratospherically high, which is why more landlords are refinancing and manoeuvring themselves into a position to add to their portfolios. While high demand and subdued property prices are the carrot, certain lenders are the stick, particularly RBS and Irish lenders which are demanding landlords refinance elsewhere as they try to reduce their exposure to property.”
Gross yields on Vanilla Buy to Let fell marginally from 6.7% to 6.4% between Q4 and Q3; however, they have increased from 6.1% to 6.4% over the past year. This has enticed more landlords into adding to their residential investment portfolios.
Similarly, gross yields on complex property dropped slightly compared to Q3 but have increased compared to 12 months ago. Yields on MUFB fell from 8.8% in Q3 to 8.0% in Q4, while HMO yields fell marginally from 11.1% to 10.9% over the same period. However gross yields on HMO’s were up from 9.9% a year ago and up from 7.1% on MUFB’s.
Semi-commercial property bucked the trend of a decline in gross yields between Q3 and Q4. They jumped from 7.1% to 8.0% reflecting an increase in demand for this type of property by investors.
The number of buy to let lenders increased in Q4 from 25 to 26 thanks to the arrival of InterBay Commercial, which offers landlords a more generous stress test calculation. The number of products available dipped 5% from 465 in Q3 to 444 in Q4 – although this is normal as lenders withdraw products and prepare fresh launches for the New Year. However the average number of products available year on year has flattened.
David Whittaker commented: “Historically lenders always withdraw plenty of mortgages in the lead up to Christmas and lay the groundwork for big product launches in the New Year. So we expect the range of products to recover and improve in 2013. All eyes will be on Funding for Lending this year. It has flattered to deceive so far but plenty of the head honchos at the Bank of England think it will spring into action in 2013. If it does, we should see the availability of buy to let mortgages increase. Landlords have been saying lenders aren’t doing enough to help them and cater for their ambitions, so 2013 should bring more joy for frustrated investors.”
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