Buy To Let: investors buying smaller homes with larger yields

Landlords continue to look for cheaper, higher-performing properties according to the results of an index produced by Mortgages for Business.

An analysis of mortgages arranged by the company in the second quarter of this year shows that all types of buy to let properties purchased during the quarter had much lower values than the overall long-term average.

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 per cent.

By comparison, these properties achieved yields of just 8.7 per cent and 7.9 per cent respectively when remortgage transactions - applying to already-purchased units - were included.

“Landlords have been selective with their purchases this quarter, choosing properties that maximise 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” says Steve Olejnik, Mortgages for Business chief operating officer.

One consequence of this selectivity is that landlords have had to scale back their rate of expansion from last quarter.

The past three months saw a drop in the proportion of buy to let purchase transactions compared to Q1, returning to the preponderance of remortgages that has become common in recent years.

Loan to values remained stable across the quarter, except for a modest four per cent drop among multi-unit properties.