Buy-to-let landlords on buying spree

Buy-to-let landlords are using equity from their existing property portfolios to buy up new properties as competition in the buy-to-let mortgage market has risen markedly.

Buy-to-let landlords on buying spree

Research from Mortgages for Business suggests new purchases made up a significantly larger proportion of lending in the final quarter of 2013, across all residential property types.

Meanwhile, at the end of 2013 landlords could choose between more than 500 mortgage products – the figure today now tops 550.

Standard buy-to-let lending saw the biggest move towards new purchases with 47% of these “vanilla” mortgages going towards new buy-to-let properties. This compares to 38% representing new purchases in Q3 and 31% at the beginning of 2013.

More complex properties also formed a growing feature of landlords’ shopping lists. Houses in multiple occupation (HMOs) saw a similar trend to standard deals. Almost one third (29%) of mortgages against HMOs were for new purchases in the final quarter, compared to 23% for new purchases in Q3 and 20% in Q4 2012.

Larger, multi-unit freehold blocks (MUFBs) saw the same trend, with mortgages for new purchases making up 31% of loans against such properties, compared to 30% in Q3 and 25% at the start of 2013.

There has been a significant fall in remortgage activity over the past six months despite remortgaging still making up the majority of buy-to-let activity. In the last quarter, 53% of standard buy-to-let deals were a remortgage – down from 65% in Q2. For HMOs, 71% of buy-to-let activity was a remortgage compared to 84% six months ago. And for loans secured against MUFBs in Q4, 69% were a refinance rather than a purchase – down from 88% in Q2.

Loan to value ratios have remained broadly stable. For vanilla buy-to-let properties there was no change in loan to values for the third month running, standing at 68% once again in Q4. HMOs saw loan to values drop slightly to 70%, from 71% in Q3, and loan to value ratios on semi-commercial property fell from 66% in the previous quarter to 53% in Q4.

The only properties to see higher loan to values in Q4 were larger MUFB blocks, with loan to value ratios averaging 68% compared to 62% in the previous quarter. This is likely due to the increase in average property values among MUFBs causing landlords to require larger loan to values.

As price rises accelerated in the final month of 2013, yields have dropped across all property types. Vanilla buy-to-let yields saw a gentle fall to 5.9%, down from 6.3% in Q3, while yields on MUFB properties fell to 6.8% from 7.6% in Q3. HMOs generally record higher yields, although these have also dropped slightly, from 11.8% in Q3 to 10.4% in the final quarter of the year.

The most dramatic fall in yields was in semi-commercial property, where the average yield now stands at 4.8% as of Q4, down from 9.8% in the previous quarter. However this is probably due to a smaller data set consisting of higher value, lower yielding properties in London and the South East which have stronger growth potential.

“More mortgage choice isn’t just delivering cheaper deals – there are now even more imaginative and flexible financing options out there too – many of which offer some of the best yields,” said David Whittaker, managing director of Mortgages for Business.

“With demand for tenancies as strong as ever, landlords are making use of a more buoyant situation to boost their portfolios. As we move into 2014 capital accumulation is accelerating, and joining solid rental income to make buy-to-let consistently attractive to investors.”

Equity Release on a buy-to-let investment.

An increasing number of people are looking to residential property to fund their retirement and it is now possible to use equity release on a buy-to-let investment.

However, you need to consider whether you should be using equity release or whether selling the property might make more financial sense.

Another consideration is, in the longer term owning a buy-to-let property will still need more of a time and resource commitment than other types of investment, which may well become more difficult as you age.

Editorial Note: This content has been independently collected by the EveryInvestor advisor team and is offered on a non-advised basis. EveryInvestor may earn a commission on sales made from partner links on this page, but that doesn’t affect our editors’ opinions or evaluations. Learn more about our editorial guidelines.
Taylor Holt - 300x300

Written by
Taylor Holt
Estate Planning Expert

Taylor Is Our Resident Estate Planning Expert. He Knows That Everything Revolving Around Wills or Funeral Planning Can Be a Sensitive Subject That People Don’t Like to Discuss. But He Also Knows How Important It Is to Know All There Is to Know About It. Taylor Makes It His Mission to Spread Awareness About Estate Planning, and We Believe Everyinvestor Is the Best Platform to Do That.

Monique - 300x300

Written by
Monique Pittman
Pensions Expert

Monique Is Our Resident Pensions Expert. Many People Postpone Planning Out Their Pension, Thinking That Is Something They’ll Have to Worry Much Later in Life. Monique Knows How Important It Is to Start Planning Your Pension Early, and She Wants You to Know It Too!

Written by
Lisa Schilling
Insurance Expert

Lisa Is Our Resident Insurance Expert. She Knows How Important It Is to Be Ready for Any Scenario, Especially When a Family Member Is Involved. Nobody Likes Being Found Unprepared in a Tough Situation! Lisa Can Find the Best Insurance to Cover Your Every Need, Present and Future.

Doyle Edwards - 300x300

Written by
Doyle Edwards
Mortgages Expert

Doyle Is Our Resident Mortgages Expert. He Comes From a Long Line of Financial Gurus, and It Truly Shows. Despite His Young Age, There Is No Question He Cannot Answer When It Comes to Mortgages, and His Ability to See Outside of the Box to Find the Best Mortgage Deals Is Truly Impressive.

jason stubbs 300x300 1.jpg

Written by
Jason Stubbs
Equity Release Expert

Jason Stubbs Is a Specialist in the Equity Release Sector. He Enjoys Helping Older People Who Are Struggling Financially Get Out From Under Financial Pressure.

rachel w.jpg

Rachel Wait
Personal Finance Journalist

Rachel is an experienced finance journalist and editor with a particular interest in personal finance and consumer affairs. She has vast experience writing about money issues, property, insurance, and consumer affairs, and you’ll find her articles regularly featured in top media and newspaper publications.
francis.jpg

Reviewed by
Francis Hui
Senior Risk Manager

Having held various high-level roles across the industry, Francis is truly an expert in aiding UK citizens in their financial decisions and risk analysis. His unique insight and statistical knowledge make him the perfect person to help you take your financial future to the next level.
Mark Patterson

Written by
Mark Patterson
Mortgage Expert

Mark Patterson is a well-known expert in mortgages. He has been working as an expert for over 15 years, and he specializes in the UK mortgage market.
kath icon.png

Katherine Read
Consumer Affairs Writer

She writes on the topics of equity release, home reversion, and mortgages.

Nicola Date

Nicola Date
Writer & Journalist

Nicola is a financial writer for EveryInvestor and is passionate about the opportunities that equity release can open up for homeowners. Her extensive business experience and deep understanding of the industry means that she’s always up-to-date with the latest developments.