As a proportion of all lending, the third quarter saw an increase in new purchases for every section of the buy to let mortgage market – except semi-commercial investments – indicating a strong acceleration in investment in residential properties to let.
Despite this increase in purchase lending, remortgaging remained a dominant part of total lending for three of four types of buy to let property – once again excluding semi-commercial properties, and indicating strong demand for extra leverage from residential landlords.
Remortgaging made up the overwhelming majority of standard buy to let (or Vanilla) lending, stable at 62% after making up 65% of this lending in the second quarter. However, Houses in Multiple Occupation (HMO) saw the most remortgaging as a proportion of loans for these landlords – at 77% compared to 84% in Q2. Meanwhile, refinancing accounted for seven in ten Multi-unit Freehold Block (MUFB) loans, down slightly from 88% in Q2 – and a quarter of Semi-Commercial Property (SCP) deals, down drastically from 90% in Q2.
This comes as choice between different buy to let mortgage products increased for the second quarter in a row. Lenders have increased the number of mortgage products on offer to a total of 484 – 19 more options than in Q2, or a 4% increase. Increased choice for landlords came despite the number of lenders remaining stable at 27.
Loan-to-value ratios remained stable at 68% in Q3, the same as in Q2, however gross yields rose between the second and third quarters on all property types except SCP.
Despite higher property prices, gross yields on Vanilla properties increased to 6.3% in the third quarter, up from to 6.1% in Q2. MUFB gross yields rose more dramatically, from 6.4% last quarter to 7.6% in Q3 – and HMOs saw gross yields rise even further, to 11.8% compared to 9.5% in Q2.
However, representing a different picture for property involving commercial lettings, yields on SCP fell back to 9.8% in the third quarter, from recent highs of 11.4% in Q2.
David Whittaker, managing director of Mortgages for Business, commented:
“It’s encouraging to see a sustained improvement in the choice of different mortgage products for landlords – and that competition should help drive cheaper deals too. Rates remain low, and yields are consistently high, which is encouraging landlords to increase activity. Confidence is generally high – among both lenders and investors – which is sparking even more growth in the sector. There are some other factors driving landlords to remortgage – for example the continued turning away from the property market by some Irish banks and RBS. However, for the most part there’s such a huge amount of interest in buy to let because of the potential returns on investment.
"Yields are even higher just as landlords are starting to see prices rise more seriously too, so we’re expecting this surge of interest to continue. Fundamentally, demand from tenants is as healthy as ever, and will remain so for the foreseeable future.”
