Semi-commercial property returns 30% higher yields than vanilla buy to let in 2011

“We have broadened our analysis to cover freehold buildings where there is a small commercial element but the greater part is residential. This is in response to demand from landlords whose portfolios are more diverse than the categories we have covered thus far. We hope it generates greater debate for those many landlords being pressure to refinance by the Irish Banks and closer to home, RBS and LBG.”

The average loan to value for semi-commercial property was 62% – slightly lower than in the other complex categories. This reflects the fact LTVs for commercial properties are typically lower than buy to let mortgage transactions. 

Complex BTL deals continue to provide the best yields for professional investors. Yields and LTV rose slightly in Q4 because of the greater availability of highly geared products aimed at maximising returns for landlords, reversing the trend of declining yields in Q3. The average LTV rose from 66% in Q3 to 69% in Q4, while the average yield rose from 9.3% to 9.9%. 

Multi-unit Freehold Block deals continue to provide good returns for investors with yields rising from 6.9% to 7.1% between Q3 and Q4. The average loan size on a Multi-unit Freehold Block deal increased by 52% to £574,258. This reflects the more expensive properties that were bought in Q4. The average property value for Multi-unit Freehold Block transactions jumped from £603,583 in Q3 to £938,602 in Q4. 

In general the number of products on the market has risen by 48% since Q1 of 2011, and is also higher than the 403 products available in Q2. However, the total number of buy to let mortgage products fell slightly from 455 in Q3 to 442 in Q4, reversing the positive trend of three consecutive quarters of growth. 

Abbey for Intermediaries (Santander) was the only new entrant to the lending market over the last three months, taking the total number of BTL lenders to 25.

The rise in the number of lenders over the course of 2011 reflects increasing appetite for products from buy to let investors, who are being seduced by low property prices and high rental yields. Yields in property have remained higher than in other traditional asset classes, which is supporting high demand.

Despite growth in the number of owner-occupier products and lending to first-time buyers, demand for owner-occupier mortgages is still bottlenecked by the price of property compared to average incomes and restrictive lending conditions, which is keeping demand for rental property high. This continues to push rents up and is supporting high average yields. Average yields from vanilla BTL mortgages remain high, although they did fall slightly from 6.3% in Q3 to 6.1% in Q4.

David Whittaker commented:

“The average number of products available has fallen marginally, but that’s more a reflection on an exceptionally strong third quarter than it is of a market slowdown. Buy to let is one of the few segments of the mortgage market that is really flourishing, and investors are still seeing strong returns.

Yields on buy to let are much stronger than in other asset classes, which is still tempting an increasing number of investors into the market. Mortgage finance remains restricted for potential owner-occupiers, meaning there is a vast backlog of buyers who are confined to the rental sector. This is keeping demand astronomically high and pushing up the cost of renting into uncharted heights. With economic conditions congealing, property prices will remain low and demand for rented property should hold steady, meaning the healthy returns available from buy to let show no signs of abating.”

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