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Rental Yields on Buy to Let Properties

Yields on complex Buy To Let property reached their highest level in Q2 2012 as average annual yields on Multi-unit Freehold Blocks rose to 7.5%, according to Mortgages for Business.

Complex buy to let yields also increased on semi-commercial property, with the average yield rising from 7.3% in Q1 to 7.4% in Q2. Houses in Multiple Occupation continued to offer investors the highest returns, despite yields falling from 10.7% in Q1 to 9.2% in Q2.

The consistently high yields on complex buy to let property contrasted with vanilla buy to let, where yields dropped slightly from 6.3% in Q1 to 6.1% in Q2.

The declining yields on vanilla buy to let property came despite the average loan sizes and property values increasing in this subsector in Q2. The average loan size on vanilla increased 13% from Q1 to £138,557, while the average value of vanilla property bought by investors rose sharply from £191,470 in Q1 to £217,374 in Q2.

Buy to let mortgage availability increased in Q2. There was an average of 456 of buy to let products offered over the quarter. It represented an increase of 3% from an average of 442 products available in Q1, and of 13% from Q2 last year.

David Whittaker, managing director of Mortgages for Business, commented:

“Although the recipe for economic growth continues to elude the government, the buy to let market is performing consistently strongly and is managing to resist the economic downturn going on around it. It is the one area of the property market that is performing well. Complex buy to let yields have been consistently strong, with returns on MUFB investments proving particularly lucrative over the last quarter.

Yields in the vanilla market have reached something of a glass ceiling. At a shade over 6%, there isn’t much scope for them to increase further. It’s encouraging more investors to diversify by adding complex buy to let properties to their portfolios.

We’re also seeing vanilla investors purchasing more expensive property in the south-east as they try to tap into the big reservoir of tenant demand in the region. As a result, vanilla loan sizes and average property values have increased significantly over the last quarter.”

James Scollard, owner of CLIFFTONS in Bournemouth comments:

“We have see a rise in investors, generally the ‘baby boom era’ that expereinced high inflation through the seventies resulting in small mortgages over time, now with a high level of disposable income, equity, no mortgage, continuing to grow their property portfolios, now running typically three to six properties.’

In Bournemouth the work force is extremely strong with a vibrant service industry and growing local population. The demand for buy to let properties for the area remains strong and we see this continuing to grow.

Especially, with the limited new build happening in Bournemouth, mainly due to the local planning rules that changed regarding social housing. Previously, developers and builders could built 12 units and not contribute to social housing. Now the contribution is built 1 unit and the council look for a large contribution. They have turned the tap off for newly built properties. The result is lack of housing and growing shortage for years to come for Bournemouth.

Good for buy to let and future capital appreciation.

In you are a landlord looking to rent out a property in Bournemouth, please call me in the Bournemouth office on 01202 789699.

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Posted: 24th July 2012

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