In February The Mortgages For Business Index showed that HMO Property Investors (with HMO Mortgages) benefit from significantly higher yields for both Multi Unit Freehold Blocks and HMO’s when compared with ‘vanilla’ buy to let investments. Yields for these specialist types of property start at 5.7% which at a time when investors are finding it more difficult to find inflation busting investments provides a great opportunity.
On top of this the recent Paragon Financial Adviser Confidence Index showed that now over half of advisers expect the conditions in the buy to let mortgage market to continue to improve. Many are becoming quietly confident that not only will better rates continue to become available in the second half of 2011 but that product innovation and better criteria will continue to come to market.
HMO Mortgage Borrowing Benefits
Early signs of this improvement came with Paragon’s return to the market providing some great HMO Mortgages through specialist brokers adding to their existing offerings. Kensington pushed the LTV’s available on vanilla buy to let mortgages to 85% for the first time since the credit crunch, and sometimes even income verification. With these significant changes and improvements already in the first half of the year it’s no surprise that many advisers are becoming more confident.
The other driving factor behind this increase in confidence has been the fact that it’s not just HMO mortgage yields that are on the rise. Paragon also reported that rental yields generally have been improving. More profitable landlords are much more likely to be considering further purchases and expanding their portfolios. This means more business for brokers and lenders as well as an improvement in the supply of available housing stock for let to buy – something the market seems to badly need. The current shortage of available stock has provided some good news to landlords as rental voids have continued to fall to historically low levels. Landlords currently have a great deal of confidence that they can find a replacement tenant quickly and without cutting their rent when an old tenant gives notice.
Having said that landlords still need to be careful to thoroughly research the exact area in which they intend to purchase their investment property. Nationally yields do vary considerably between areas and do not necessarily correlate to house values which can lead to issues with approval of a buy to let mortgage where the rental income often needs to cover 125% of the payment.
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