Buy to let remortgaging hits new high as high yields tempt landlords

The first quarter of 2013 saw a new high in remortgaging activity, with more landlords trying to raise enough capital to expand their portfolios and take advantage of high gross yields, according to detailed research by Mortgages for Business, the specialist buy to let broker.

Remortgaging accounted for 69% of all residential buy to let transactions in Q1 – up from just 43% in the last quarter of 2012 – and was the highest on record for a single quarter since the start of the broker’s Complex Buy to Let Index in Q1 2011. Refinancing also accounted for over two-thirds of transactions on Houses in Multiple Occupation (HMO) and Multi-unit Freehold Blocks (MUFB).

High gross yields are encouraging more landlords to refinance. Average gross yields have increased over the past year on all property types other than HMO, which has encouraged more landlords to refinance to free up enough capital to make further purchases. Yields on vanilla property have improved marginally from 6.3% to 6.4% over the past 12 months - although it remains by some distance the lowest gross yielding asset class. Yields on semi-commercial property are significantly higher, and, despite the fall in HMO gross yields from 10.7% to 10.5% over the past 12 months, it remains the highest yielding property type.

Another factor supporting the increase may be the Funding for Lending Scheme, which has begun to improve mortgage availability by encouraging lenders to ease criteria and drop rates even further.

And on-going demands from RBS Group and Irish banks for landlords to refinance elsewhere have also contributed to the sharp increase in remortgaging.

David Whittaker, managing director of Mortgages for Business, explains: “Gross yields are tantalisingly strong at the moment, and that has sparked a real splurge of refinancing as landlords try to unlock enough capital to expand their portfolios and make hay while yields are high. With so much refinancing going on at the moment, we might well see a purple patch of purchasing activity later on in 2013.”

Average property values for buy to let transactions increased over the course of the year on residential stock and MUFB. This is particularly to do with the wider rise in house prices but also because investors are choosing to purchase property in more expensive areas – notably the South East. On residential property, average property values on transactions are over a third higher than they were a year ago.

But average property values fell on semi-commercial property (SCP) and HMOs because more investors are choosing to refinance cheaper property. Between Q4 2012 and the first quarter of this year SCP values fell sharply from £711,875 to £424,419, and from £305,340 to £278,356 on HMOs.

The number of mortgages on the market fell for the second quarter in succession, down from 444 to 434, as lenders look to cull unpopular mortgages from their range of offerings and focus on more popular ones. One new lender, Investec Professional Mortgages, entered the market in the first quarter.

David Whittaker comments: “The range of mortgages shrunk over the last quarter but that’s more because lenders are being selective and weeding out less popular products, rather than a sign that it is becoming harder for property investors to get a mortgage.”