Friday, 10 October 2014

Vanilla properties losing flavour with landlords

Rental yields on standard or “vanilla” buy to let properties are falling, according to the latest Mortgages for Business Complex Buy to Let Index.

Gross yields on vanilla buy to let properties now stand at 5.9 per cent as of Q3 2014, down from 6.3 per cent in the second quarter and 6.4 per cent in Q1 2014.

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

“Rents on the plainest buy-to-let properties have not kept pace with rapid price rises in many areas, suppressing average yields.  This illustrates two key points for landlords – location matters – and the simplest investments are not always the most lucrative.”

By contrast, other property types have much higher yields. Multi-unit freehold blocks hit a record high gross yield of 8.6 per cent in Q3 2014.

And while rental yields from houses in multiple occupation dipped to 8.9 per cent in the third quarter, this is still an extra three percentage points above vanilla buy-to-let.

Whittaker continues:  “Landlords with multiple tenants at each property can earn a better yield by providing what people need – often just a room rather than a whole flat.  This must be done responsibly, for example houses in multiple occupation often require a licence from the appropriate local authority, while landlords will also need a specialist mortgage product for more complex property types.

“However, if those hurdles are met, landlords can earn not just a higher, but often a more reliable return as part of a diversified investment.”

Choice between different buy to let mortgage products is now at a fresh all-time record. At the end of Q3, there were 707 buy-to-let mortgage products on the market, up from 637 in the second quarter and 458 one year ago.

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