‘Vanilla’ buy-to-let properties have been hit by a fall in rental yields, research by Kent-based Mortgages for Business has found.
Speaking about the firm’s complex buy-to-let index, managing director David Whittaker said: “Rents on the plainest buy-to-let properties have not kept pace with rapid price rises in many areas, suppressing average yields.
“This illustrates two key points for landlords – location matters, and the simplest investments are not always the most lucrative.”
| Property type | Gross yield in Q3 2014 |
| Standard buy-to-let properties | 5.9% |
| Multi-unit freehold blocks | 8.6% |
| Houses in multiple occupation | 8.9% |
Source: Mortgage for Business
According to the research, gross yields on standard buy-to-let properties were 5.9 per cent during the third quarter of 2014, down from 6.3 per cent in the second quarter and 6.4 per cent in the first.
In contrast, during the third quarter multi-unit freehold blocks gave landlords a gross yield of 8.6 per cent, up from 7.3 per cent in the second quarter.
Houses in multiple occupation provided a gross yield of 8.9 per cent in the third quarter, down from 9.3 per cent in the second quarter.
The figures came as the Royal Institution of Chartered Surveyors chief economist Simon Rubinsohn claimed that buyer demand was slipping while the rental sector remained strong.
Writing in the 22-page RICS report, Residential Market Survey: September 2014, he said: “The softening tone to buyer activity in the sales market stands in contrast to the lettings market, where demand on a non-seasonally adjusted basis has continued to grow solidly across the majority of the UK.”
But he added that the rate of new instructions to let had been outpaced by the growth in the number of tenants, adding: “The tightening in market conditions has led to an increase in expectations for rental growth, with respondents now anticipating growth of 2.3 per cent over the coming year.”
Steve Bolton, chairman of national property investment firm Platinum Property Partners, said: “This imbalance creates a difficult situation for prospective tenants, with multiple consumers chasing the same property and the number of suitable rental options rapidly shrinking.
“However, this does present a great opportunity for investors looking to step in to the buy-to-let market for the first time or expand their existing portfolios.”
Adviser view
Shoaib Arshad, mortgage consultant for London-based Paul Alexander Mortgage Consultants, said: “Lenders are a bit more stringent in terms of the rental yield. They have tightened up their criteria. Landlords now need to be more picky about what properties they choose.”
