Rising property prices squeeze rental yields

Gross yields on  Buy-to-Let properties have dropped to 6.3% in the second quarter, down from 6.4% in Q1. This comes as modest rent rises have been outstripped by rapid growth in property values.

More complex buy-to-let properties still command considerably higher yields. Houses in multiple occupation (HMOs) saw gross yields of 9.3% in Q2 2014. While this is also down slightly from Q1 (9.6%), this gross yield remains around 50% higher than for vanilla properties.

Multi-unit freehold blocks (MUFBs) also offer a premium compared to standard buy-to-let investments. In Q2 2014 these properties commanded an average gross yield of 7.3%, almost a full percentage point higher than vanilla yields.

Landlords with standard buy-to-let properties have remortgaged at a record rate in Q2. Remortgaging now represents more than two thirds (70%) of new vanilla Buy to Let mortgages. This compares to 65% in the first quarter of 2014.

By contrast, new purchases make up an increasing proportion of activity for more complex properties, as landlords increase their exposure to a wider variety of property types.

In the second quarter of 2014, one in three (31%) mortgages for multi-units were for new purchases, up from one in four (19%) in Q1. Meanwhile, 28% of loans secured against HMOs are now for new purchases, compared to 25% in the first quarter of the year.