In the second quarter of 2012 the average buy-to-let variable rate was 4.10% compared with 4.07% in the previous quarter, according to TBMC’s Landlord Profile Tracking Index.
The results are based on a sample size of 616 applicants for buy-to-let mortgages via TBMC during April, May and June 2012.
“However, the average fixed rate for offers processed by TBMC in second quarter 2012 did increase more noticeably to 5.06% up from 4.82% in the first quarter (the highest since the beginning of 2010), although this may reflect the wider availability of higher loan-to-value fixed rates which tend to be priced higher, said Andy Young (pictured), chief executive of the buy-to-let and commercial mortgage specialist. “It will be interesting to see how average fixed rate pricing varies during the second half of the year.
“In terms of product choice, the split between fixed and variable rates reflects the aforementioned pricing gap and there is now a clear preference for variable products. At TBMC during the second quarter of this year, 56% of applications were for variable rates and 44% for fixed rates. There are currently some very competitive two- year discounted rates available and landlords are feeling confident that the underlying interest rate will remain low for some time to come.
“For the last couple of years rental prices have experienced a general upward trend as tenant demand and competition for accommodation has increased. This has been due to a number of factors including first time buyers struggling to get on the housing ladder, a limited property stock, large student populations and a more mobile work force. For second quarter 2012, average rental income was still strong; averaging over £1,000 per month and landlords can expect to continue experiencing high demand and good returns.”
Young said that since the beginning of the year there has been a gradual increase in the average loan-to-value (LTV) for buy-to-let mortgages processed by TBMC. At the end of the 2011 the average LTV for mortgage offers was 63.41%, the lowest it had been for two years as the choice of higher LTV products for landlords was limited.
However, the last six months has seen a significant improvement in the number of lenders and products available at up to 80% LTV and there are even some 85% LTV products currently on offer. Young said: “This is great news for landlords, especially professionals who may prefer a more highly geared portfolio, which can potentially allow them to release funds to buy more properties and increase their overall returns.”
In the second quarter, the average LTV for mortgage offers at TBMC was 67.30% which is the highest it has been for two years.
“Buy-to-let property remains a good investment for landlords with average rental yields consistently over 6.0%,” said Young. “In the second quarter, those applying for a buy-to-let mortgage via TBMC reported an average rental yield of 6.60% which is up on the previous quarter (6.29%).
“As to be expected, London was the most popular location for rental property in second quarter, but the capital recorded a below average rental yield of 5.62%. The second most popular locations were Newcastle upon Tyne and Birmingham, both recording an above average rental yield of 7.80% and 7.22% respectively, which goes to show how choice of location can affect overall returns.”