Average rental yields over 6.0%

TBMC, the buy-to-let and commercial mortgage specialist, produces the Landlord Profile Tracking Index to track developments in the UK buy-to-let mortgage market.

Related topics:  Specialist Lending
Amy Loddington
24th July 2012
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Its findings for Q2 2012 highlight several interesting trends for the sector, including:

- Average loan size fell to £158435 from £158,696 in Q2, a decrease of £261

- Average rental yield in Q2 rose to 6.60% from 6.29%, a rise of 0.31%

- Average chosen fixed rate rose to 5.06% from 4.82%, a rise of 0.25%

- Average chosen variable rate was 4.10%, up from 4.07% by 0.03%

- Average loan to value reached 67.30% from 66.31%, an increase of  0.99%

Andy Young, chief executive of TBMC comments on the Index’s findings:

Variable rates favoured as interest rates remain low


"Since the beginning of the year, the buy-to-let mortgage market has improved with more lenders and products now available. This has led to greater competition between providers, together with persisting low interest rates, resulting in relatively stable product pricing overall. In Q2 2012 the average variable rate was 4.10% compared with 4.07% in the previous quarter.

"However, the average fixed rate for offers processed by TBMC in Q2 2012 did increase more noticeably to 5.06% up from 4.82% in Q1 (the highest since the beginning of 2010), although this may reflect the wider availability of higher loan-to-value fixed rates which tend to be priced higher. It will be interesting to see how average fixed rate pricing varies during the second half of the year.

"In terms of product choice, the split between fixed and variable rates reflects the aforementioned pricing gap and there is now a clear preference for variable products. At TBMC during the second quarter this year, 56% of applications were for variable rates and 44% for fixed rates. There are currently some very competitive 2 year discounted rates available and landlords are feeling confident that the underlying interest rate will remain low for some time to come."

Rents remain strong

"For the last couple of years rental prices have experienced a general upward trend as tenant demand and competition for accommodation has increased. This has been due to a number of factors including first time buyers struggling to get on the housing ladder, a limited property stock, large student populations and a more mobile work force. For Q2 2012, average rental income was still strong; averaging over £1,000 per month and landlords can expect to continue experiencing high demand and good returns."

Average LTVs continue upward trend

"Since the beginning of the year there has been a gradual increase in the average loan-to-value for buy-to-let mortgages processed by TBMC. At the end of the 2011 the average LTV for mortgage offers was 63.41%, the lowest it had been for two years as the choice of higher LTV products for landlords was limited.

"However, the last six months has seen a significant improvement in the number of lenders and products available at up to 80% LTV and there are even some 85% LTV products currently on offer. This is great news for landlords, especially professionals who may prefer a more highly geared portfolio, which can potentially allow them to release funds to buy more properties and increase their overall returns.

"In Q2 2102 the average LTV for mortgage offers at TBMC was 67.30% which is the highest it has been for two years."

Average rental yields are over 6.0%


"Buy-to-let property remains a good investment for landlords with average rental yields consistently over 6.0%. In Q2 2012, those applying for a buy-to-let mortgage via TBMC reported an average rental yield of 6.60% which is up on the previous quarter (6.29%).

"As is to be expected, London was the most popular location for rental property in Q2, but the capital recorded a below average rental yield of 5.62%. The second most popular locations were Newcastle upon Tyne and Birmingham, both recording an above average rental yield of 7.80% and 7.22% respectively, which goes to show how choice of location can affect overall returns."
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