Buy-to-let landlords looking to secure high rental yields should consider investing in Houses in Multiple Occupation (HMOs) which continue to outperform standard buy-to-let properties, the latest Complex Buy to Let Index published by Mortgages for Business shows.
HMOs produced average yields of 8.9% in 2017, according to the report. But it is interesting to note that this is first time that yields for this type of property have dipped below 9% since the index was launched in 2011.
“The attractiveness of HMOs as a buy to let investment has increased in recent years not only because of the higher yields on offer but because serious investors are keener to diversify their portfolios,” said Jeni Browne, Sales Director at Mortgages for Business said:
With more buy-to-let investors vying for HMOs, prices have been pushed up more quickly than the rents which, Browne suggests, is one of the main reasons their yields have dropped.
Multi-units, such as blocks of flats, also performed well last year, generating yields of 8.1% compared to 8.3% the year before. By comparison vanilla properties produced, lower yet more consistent yields averaging 5.6% in 2017.
The average value of a vanilla buy-to-let property in 2017 was £305,283, a 19% decrease on the average of £375,409 in 2016, which Mortgages for Business suggests means that more landlords are seeking lower value properties, which in part explains why more buy-to-let landlords are looking to acquire property in the north of England.
Browne continued: “Savvy landlords like to have a good mix of properties. They like the consistency of vanilla BTLs and the higher returns of more complex property types. Although lower than previously, 8.9% is still an excellent return for HMOs, not only when compared to vanilla buy to lets but also other, non-property assets.”
The index also revealed that there has been a 444% rise in the number of buy-to-let mortgage products since the index was launched in 2011, but Browne believes that many lenders will soon start to reduce the range of mortgages on offer.
“Looking forward, it is widely anticipated that buy to let lending will contract this year in response to the tax and regulatory measures being imposed on the sector,” Browne added. “As such, I would expect product numbers to peak in Q1 2018 and we have already seen some lenders trimming their ranges, leaving a core of great products which have been designed to reflect the changing needs of landlords.”