Buy-to-let landlords are seizing on falling mortgage rates to expand their residential property portfolios, as yields hit 6.3% despite rising prices.
According to the latest Mortgages for Business Complex Buy to Let Index, landlords expanded their portfolios in Q3, making use of significantly more purchase finance than in previous quarter.
Growing numbers are also using cheap finance to remortgage to lower rates, following a 4% increase in the number of BTL mortgage products since the second quarter.
They have been rewarded by a rise in gross yields on all property types, with the exception of semi-commercial properties.
The number of BTL mortgage products increased for the second quarter in a row to a total of 484. That is 19 more than in Q2, or a 4% increase, and 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.
Gross yields on vanilla properties increased to 6.3% in the third quarter, up from to 6.1% in Q2, despite rising property prices. Yields in multi-unit freehold blocks rose more dramatically, from 6.4% in Q2 quarter to 7.6% in Q3.
And houses in multiple occupation (HMOs) saw an even more dramatic rise in gross yields, from 9.5% to 11.8% in Q3.
But yields for commercial lettings slumped from the recent high of 11.4% to 9.8%.
David Whittaker, managing director of Mortgages for Business, said: “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 BTL 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.”