Landlords looking for cheaper, higher yielding properties

Landlords in the UK continue to look for cheaper properties for their portfolios with higher yields, the latest research suggests.

They have been going for higher-performing options when making purchases of any property type, according to the complex buy to let index from Mortgages for Business.

An analysis of mortgages arranged in the second quarter of 2017 shows that all types of buy to let properties purchased during the quarter had much lower values than the overall average.

The report says that 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.

‘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,’ said Steve Olejnik, chief operating officer of Mortgages for Business.

The report explains that one consequence of this selectivity is that landlords have had to scale back their rate of expansion from last quarter. The second quarter saw a drop in the proportion of buy to let purchase transactions compared to the first quarter, 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.

The data also show that loan to values remained stable across the quarter, except for a modest 4% drop among multi-unit properties.