The most recent report from Mortgages for Businesses shows that HMO’s are outperforming all other types of rental property in terms of yields.
Average yields on a HMO stand at just below 10% since 2011.
Rising product numbers
Buy-to-let products have risen during the second quarter of the year, in comparison to the first, albeit more slowly. Products increased by an average of 75 in quarter two, compared to 142 in the first three months of the year.
This slower rise during the second quarter can be attributed to lenders creating separate offerings, with more stringent stress test calculations for borrowers.
Remortgaging followed a similar trend and house purchase activity slid to levels seen in 2015. This was due to the surge in investment transactions before the Stamp Duty deadline.
Average LTV values of HMOs also increased quarter-on-quarter, from 62% in Q1 to 75% in Q2. When data from the last five years is analysed, LTV’s on HMO’s have remained steady, averaging 69%.
LTV’s on vanilla buy-to-lets have also stayed consistent, averaging 67% during the same period.
However, LTV’s for multi-units and semi-commercial property have seen a more up and down few years. The average LTV of a multi-unit stood at only 56% in quarter two of this year, in comparison to an average of 64% in the last five years. Average LTV’s for semi-commercial property was 60% in the second quarter of the year.
HMO yields greater than other rental property types
David Whittaker, managing director of Mortgages for Business, said, ‘we now have five years’ worth of data against which investors can benchmark their portfolios. Both Vanilla BTL and HMO property offer fairly consistent yields. Fort the more cautious investor and for those who like a mix of risk within their portfolio, 6.1% average yield on a standard BTL still represents a good return. And for the more experienced investor, HMOs certainly perform better than all other types of rental property averaging just below 10% since 2011.’
‘Average yields on multi-units grew to a very positive 9.5%, well above the five-year average of 7.4% demonstrating that landlords can often achieve greater yields by taking on more complex property types. Semi-commercial property performed less well than expected considering these buildings are not subject to the residential stamp duty surcharge. Going forward it will be interesting to see whether any trends develop as more investors are expected to move into this niche,’ Whittaker added.