Average rental yields remain strong

Nia Williams

October 17, 2013

This is according to TBMC’s latest Landlord Profile Tracking Index which tracks developments in the UK buy-to-let mortgage market.

Its findings for Q3 2013 highlight several interesting trends for the sector including:

• Average rental yields remain strong

• Student tenants deliver highest returns

• Buy-to-let mortgage rates remained low

• Demand for variable and fixed rates was fairly evenly split

• Demand for purchase and remortgage products was evenly split

This has resulted in an average rental yield of more than 6.0% since the beginning of the year. In Q3, the average rental yield for buy-to-let applications processed by TBMC was 6.06%.

One of the most consistent trends observed in the Landlord Profile Tracking Index has been the rental yields achieved from student accommodation which are considerably higher than the average. In Q3, the average rental yield from a student tenant was 7.50% (compared with a 6.06% overall average).

Andy Young, chief executive of TBMC, said: “It is surprising therefore that such a small percentage of applications processed by TBMC have been for properties rented out to students. In Q3 only nine out of 425 applications sampled were for student properties, representing just 2% (families represented 62% and professionals 33%).

“It may be that landlords have some reservations about renting to students, perhaps thinking they might be unreliable payers or give cause to higher property maintenance. However, recent research by the National Landlord’s Association has shown that students are in fact the most reliable tenants – just 38% of student landlords experienced arrears in the last year compared with 59% of those letting to blue collar workers, 40% letting to families and 71% letting to benefit recipients.”

Q3 continued the overall trend for lower interest rates being offered in 2013. The average variable rate chosen for mortgage offers processed by TBMC during the quarter was 4.25% and the average fixed rate was 4.15%.

It would appear that landlords are taking advantage of the availability of such attractive fixed rate deals, as 56% of offers processed by TBMC during Q3 were for fixed rate products.

The competitive finance currently on offer for buy-to-let property investors hasn’t gone unnoticed by existing landlords either, with many choosing to remortgage current rental properties, as evidenced by 52% of the mortgage offers processed during the quarter being for remortgage products.

As competition among lenders has remained strong, the ability of landlords to obtain higher level of lending has improved. Although Kent Reliance is still the only lender offering 85% LTV buy-to-let mortgages, there is a wide selection of lenders and products available at 80% and 75% LTV.

Landlords are also clearly interested in employing higher gearing in their property investments, as the average LTV for offers processed by TBMC during Q3 was 74.69% (up from 73.91% in Q2).

Young concluded: “The buy-to-let mortgage market has been stable throughout the year so far and brokers can feel confident about sourcing some competitive products for their landlord clients. Tenant demand remains high supporting good rental incomes for landlords and resulting in strong average rental yields.”

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