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Buy-to-let investors benefit from falling house prices

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10/10/2012
Average yields generated by ‘complex’ buy-to-let investing rose in the third quarter of the year, thanks to decreasing property prices and strong tenenat demand.

According to the latest Mortgages for Business Complex Buy to Let Index, yields on simple, so-called ‘vanilla’ buy to let increased from 6.1% to 6.7% over the quarter, thanks largely to the average property value of vanilla investments falling by 3% between Q2 and Q3 to £210,197.

This helped push up the average loan to value (LTV) up from 64% to 68%, with lenders more willing to grant higher LTV deals thanks to lower property prices.

Average yields generated by Houses in Multiple Occupation (HMOs) also increased, from 9.2% in Q2 to 11.1% in Q3. This was triggered by a sharp increase in refinancing of cheaper HMO property, as these lower value properties tend to have a higher yield than more expensive properties.

The average property value in HMO deals fell 41% compared to last quarter as more investors remortgaged their buy-to-let deals on properties under £200,000.

Yields on Multi-Unit Freehold Block (MUFB) property rose for similar reasons. Gross yields increased from 7.5% to 8.8% between Q3 and Q4 as average property values in MUFB deals decreased by 33% from £442,223 to £297,938.

The number of lenders operating in buy to let remained at 25, while the number of products increased marginally to 465 from 456 in Q2, suggesting the market has found some stability following its recovery from the financial crash.

David Whittaker, managing director of Mortgages for Business, commented:

“The owner-occupier market is sinking deeper into the mire, and is dragging property prices down with it. It’s great news for buy to let investors, who are able to snap up cheaper property, usually at a higher LTV because lenders are understandably willing to advance more when property prices are lower. It’s a fairly simple equation: suppressed property prices, plus strong demand for rented accommodation, equals higher yields for landlords.

“Investors are being canny and targeting areas where house prices are particularly squeezed. Anywhere outside the south-east is a particularly rich seam at the moment.”

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