Conditions good for buy-to-let investors

by Sarah Ashcroft

The rental market remains an attractive one for landlords, according to recent buy-to-let advice from Mortgages for Business, but potential investors have been cautioned that it is still essential to assess the performance of each local market individually.

David Whittaker, managing director at Mortgages for Business, said that as of the third quarter of the year, the average yield on a "vanilla buy-to-let" property is now 6.3 per cent.

However, he added that once yields go above six per cent, it indicates a "mismatch between yields and capital value" - in other words, suggesting that rents are too high, property values too soft or a combination of both.

"It is probably the latter, but such is the degree of rental demand, you would not split that observation equally between rent demand and purchase price; you would split it more heavily that the rent demand was outstripping capital supply," he added.

The comments come soon after Defaqto revealed that there has been a 104 per cent increase in the number of buy to let mortgage products available for landlords who are increasing their number of tenancy agreements.

Available products went from 237 in October 2008 to 483 today.

Of these, 15 lenders operate only through intermediaries, 18 only distribute directly and the remaining 30 lenders offer services through both channels.

The number of buy-to-let lenders has increased from 56 to 63 in the last three years, and brokers have become increasingly important in the sector as landlords expand their portfolios.

"With property prices being soft, a figure over six per cent on buy-to-let is not sustainable in the longer term," Mr Whittaker went on to say.

"While it is attractive for landlords to lump in, it will be determined by that landlord's view of the market and the region."

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Published on: October 28, 2011

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