Remortgaging now represents the greatest proportion of landlords’ mortgage activity since Q2 2013, according to the latest Mortgages for Business Complex Buy to Let Index.
The acceleration of remortgaging comes as the number of buy to let mortgages has now reached an average of 586 separate products – giving UK landlords 65 more buy to let mortgage products than three months ago, and on average, 152 more than in Q1 2013.
In the first quarter of 2014, 65% of standard ‘vanilla’ buy to let transactions were remortgages rather than new purchases. This is almost as high as the 69% seen at the same point last year, and a sharp increase from the slim majority of transactions made up by remortgaging more recently, when this stood at 53% in the final quarter of 2013.
Landlords owning more complex properties are also remortgaging at an increasing pace. Three quarters (75%) of transactions against houses in multiple occupation (HMOs) were remortgages, compared to 71% in the previous quarter and 69% in Q1 2013. Meanwhile remortgages made up 81% of transactions involving larger, multi-unit freehold blocks (MUFBs), up sharply from 69% last quarter and even higher than the 75% of the same quarter in Q1 2013.
Loan to value ratios on most buy to let mortgages have risen in the last three months, in line with general trends in property prices. Average LTVs for vanilla buy to let mortgages now stand at 69%, up from 68% in Q4 2013, while HMOs properties have seen LTVs rise to 72%. By contrast there was a slight fall in LTVs for multi-unit blocks, which now average 66%, compared to 68% LTVs for these properties in the previous quarter.
Gross yields have risen on vanilla buy to let properties, to stand at 6.4%. This is despite rising property prices and reverses the previous trend towards lower yields. Vanilla buy to let properties now command the same yield as a year ago, after rising sharply from 5.9% in Q4 2013.
However, houses in multiple occupation still command by far the greatest yields. Gross yields on the average HMO are now 9.6%, down slightly from 10.4% in Q4 2013 but still significantly higher than other property types. Multi-unit freehold blocks have also seen lower yields than last quarter – at 6.2% compared to 6.8% in Q4 2013, putting MUFBs slightly behind vanilla buy to let yields.
David Whittaker, managing director of Mortgages for Business, said: “Landlords know that exceptionally low interest rates can’t last forever. But now they need to act on that instinct. The Bank of England will almost certainly raise interest rates before the next general election. And that will have a sharp effect on anyone caught out in less than 12 months’ time.
“Particularly now that there’s such competition in the buy to let market there will probably be a better option out there somewhere for most landlords. Switching to a five year fixed-rate deal is important while these remain so affordable. Moreover, as the general shortage of property starts to bite – and mortgage rates inevitably rise – more complex deals will remain the best way to supply more homes and for landlords to secure stronger returns.”
