UK landlords seeing average yields falling, latest quarterly figures show

Average yields on residential rental listings in the UK have cooled across the board with landlords owning semi-commercial listing sector the biggest losers, according to the latest buy to let index.

Yields on semi commercial listings have fallen from 7.5% in the first quarter of 2015 to 5.9% in the second quarter, their lowest level in four quarters and a drop of 1.6%, the data from Mortgages for Business shows.

Similarly, returns on houses in multiple occupation (HMOs) have dropped 1.3% to 9.3% between the first and second quarters of 2015 while average yields for standard buy to let have experienced a less marked decline, dipping from 6.4% to 5.8%.

Multi-unit freehold blocks (MUFB) saw the only quarterly improvement with average returns up 0.8% to 7.1%. However, the second quarter MUFB yield rate is still below the 8.6% and 9.3% returns recorded in the third and fourth quarters of 2014 respectively.

The data also shows that average loan to value (LTV) ratio has begun to fall. Average LTV rates for standard buy to let and multi-unit freehold blocks remained unchanged at 66% and 67% respectively between the first and second quarter of 2015.

The LTV ratio for HMOs fell 1% over the quarter to 69% but the largest drop was in semi-commercial listing, down from 65% to 54% over the first two quarters of this year, a drop of 11% and the lowest LTV rate for four quarters.
 
‘LTV ratios and yield rates have slid.  While rental yields are still robust they seem to have lost the momentum they were gathering between the end of last year and the start of this one. That said, multi-unit freehold blocks seem to have avoided the yield downturn, demonstrating once again that complex listing types produce higher yields because they offer tenants more features and facilities,’ said David Whittaker managing director of Mortgages for Business.

‘While many landlords had hoped that the improving economic climate may have pushed loan to value ratios even higher, the figures appear to have stalled. Property values dipped in the second quarter, but so did average loan amounts, suggesting lenders are waiting for more signs of economic improvement before they lend any more relative to the value of a listing,’ he explained.
 
He also pointed out that the General Election campaign impacted on LTV ratios. ‘With the pundits repeatedly predicting chaotic political horse trading after 07 May, many lenders thought it best to not give too much too early. They feared a change in the policy status quo that would hit BTL landlords and, with it, their ability to make mortgage repayments,’ he added.

The report also shows that the proportion of HMO loans for remortgaging reached 90% in the second quarter of 2015, a 17% on the previous quarter and the largest proportion of any rental listing type in four quarters.

Conversely, the proportion of SCP loans for remortgaging has fallen back from 87% to 68% between the first and second quarter, the lowest proportion of SCP loans for remortgaging in four quarters.

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Source: Property News Spain