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.