Landlords purchasing cheaper properties with higher yields

Landlords continue to look for cheaper, higher-performing options when making purchases of any property type, according to the results of the latest Complex Buy to Let Index by Mortgages for Business.

An analysis of mortgages arranged via Mortgages for Business in Q2 shows that all types of buy to let properties purchased during the quarter had much lower values than the overall average.

These lower-value properties provide better return on the landlord’s investment, with both HMO and multi-unit purchases achieving average yields of over 10%. By comparison, these properties achieved yields of just 8.7% and 7.9% respectively when remortgage transactions were included.

Commenting on the results, Steve Olejnik, COO of Mortgages for Business said:
“Landlords have been selective with their purchases this quarter, choosing properties that maximise their income with minimal investment. This strategy is likely to remain common as it allows landlords to maintain profitability while HMRC phases in restrictions on income tax relief for landlords.”

One consequence of this selectivity is that landlords have had to scale back their rate of expansion from last quarter. Q2 saw a drop in the proportion of buy to let purchase transactions compared to Q1, returning to the preponderance of remortgages that has become common in recent years.

Only semi-commercial properties saw an increase in purchase activity, with purchases now making up 67% of quarterly mortgage transactions for this property type. However, as a less-common investment, this data set was deemed too small to derive anything of significance.

Loan to values remained stable across the quarter, except for a modest (4%) drop among multi-unit properties.

The index can be found here.

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