Landlords now have the widest choice of mortgage options on record – approaching 1,000.
As of Q3 2015, the number of buy to let mortgage products on the UK lending market stands at 953.
The figure marks an 11% increase since Q2, when the average number of mortgages on offer to landlords stood previously at 861.
On an annual basis this represents an increase of 35% compared to Q3 2014, when there were just 707 different buy to let mortgages to choose from.
Yields slide while property prices rise
Standard ‘vanilla’ buy to let properties already offer the lowest gross yield to landlords, but this has now dropped 0.8 percentage points in the space of three months, to the psychologically important level of 5.0%. On an annual basis, yields on vanilla properties have fallen further, by 0.9 percentage points since Q3 2014.
Similarly, between Q2 and Q3 2015, the yield on a multi-unit freehold blocks (MUFBs) fell by a percentage point, from 7.1% to 6.1%. Compared to a year ago, when the average MUFB yield was 8.6% in Q3 2014, yields for such properties have seen a 2.5 percentage point tumble. However, at 6.1%, the absolute level remains considerably higher than for ‘vanilla’ properties.
Houses in multiple occupation (or HMOs) have seen yields perform comparably well. Between Q2 2015 and Q3 2015, HMO yields fell by only 0.1 percentage points – from 9.1% to 9.0%.
As well as more modest yields overall, this means the spread between the lowest yielding property type (vanilla) and the highest yielding (HMOs) has widened – to 4.0 percentage points.
David Whittaker managing director of Mortgages for Business, comments: “The number of new mortgages coming onto the market has rocketed in recent months. There is huge interest in mortgages suitable for limited companies as landlords take advice from their accountants.
Meanwhile, as rents fail to keep pace with racing property prices, yields are continuing to plateau. Returns on vanilla buy to let have now fallen to the 5% mark. Landlords with reasonable borrowing costs and a strong portfolio of these sorts of properties will still be making a solid income from such investments – but this changes the case for those considering new purchases. With average yields on HMOs still nearer 10%, more complex property types are likely to attract a growing portion of new investment.”
Remortgaging the priority for most landlords
Remortgaging has outperformed new purchase loans for the fourth quarter running. In Q3 2015, 66% of new vanilla BTL loans were for remortgaging, compared to 34% for new property purchases – a four percentage point increase in favour of remortgaging since Q2. Similarly, for MUFB properties, remortgaging made up 89% of new mortgages in Q3 2015, compared to 82% remortgaging in Q2 – and just 67% in Q3 2014.
In Q2 new purchases made up just one-in-ten mortgages for homes in multiple occupation (10%); however; Q3 has seen the proportion revert to the recent trend.
David Whittaker concludes: “There is a change of mood from landlords. Recent unfriendly noises from the Government and Bank of England have contributed – but mostly this represents a natural cooling in the buy to let industry after an exceptionally strong first half of 2015.
Consolidation is the order of the day. Landlords are taking full advantage of record low borrowing rates while this lasts. The fact that landlords are choosing in vastly larger numbers to remortgage rental property rather than purchase shows they are looking to get a competitive fixed rate mortgage.”
