The index tracks BTL loan size, property value, loan to value and yields and focuses on the previously unreported sub-sectors of the more complex buy to let mortgage transactions, specifically Houses in Multiple Occupation and multi-unit freehold blocks. Results will be published quarterly based on transactions carried out via Mortgages for Business in the previous three months.
David Whittaker, managing director at Mortgages for Business said:
“Client feedback throughout last year indicated that active professional landlords and residential property investors are keen to understand more about market dynamics and key trends. While they read journals and articles from the Council of Mortgage Lenders and other sources, they believe that the data is too general and historic by the time it is collated and analysed.”
Results from the first index however, published today, give a snapshot of the market in 2010 and reveal that yields for Houses in Multiple Occupation were 8.7% - almost double those of the more ‘vanilla’ buy to let properties. The average loan size for an HMO property was £287,800 with a loan to value of 61%.
In contrast, the average loan size for multi-unit freehold blocks was higher, at £470,900 with a loan to value of 57%. The average yield was 5.7%, lower than for HMO properties but still a better return on investment than vanilla buy to let purchases.
Rob Lankey, managing director of Commercial Mortgages at Aldermore Bank, says:
“Mortgages for Business has shown real initiative in taking a lead in providing timely and relevant market data against which we can measure our own activity in those key areas of HMO and multi unit freehold lending.
"The more data any lender can access on market segments, the more confident that lender will be about its lending appetite for that sector. MFB is to be congratulated on the quality of the output data and we look forward to the results of their next quarterly review”.
Vanilla Buy to Let Mortgage Transactions
The average loan size is broadly in line with Council of Mortgage Lenders data of Q3 2010 which reports £104,000. MFB data shows a 13.75% increase in the number of transactions during 2010 compared to 2009.
During 2010, 57% of all vanilla buy to let transactions were for remortgages, a slight increase on 2009 which suggests that either investors are more willing to remortgage to release equity or they are being forced to remortgage, often elsewhere, as lenders look to reduce their debt books.
Houses in Multiple Occupation
During 2010 we saw a considerable increase in the number of HMO transactions by professional landlords, which may be due to average yields being 88% higher than for vanilla buy to let properties.
However, when calculating risk on HMO transactions, some lenders “write off” up to 25% of yields (c. 10% on vanilla buy to let properties) because there is no incentive for tenants to consume utilities sensibly where landlords pay the bills. Some landlords are addressing this issue in recently refurbished HMO properties by ensuring tenants are responsible for utility bills.
Multi-Unit Freehold Blocks
The average property and loan to value for multi-unit blocks held on a single freehold title is higher than for an HMO property because MUFBs typically contain six flats, which are let out on separate shorthold tenancies. In turn, this means that yields are normally lower because there are fewer individuals in each flat. However, yields are still higher than the average vanilla buy to let property yield.
