Your Business and Industry
How to navigate the volatility in rental yields, amid fluctuating tenant demand
One area of the buy-to-let mortgage market, and landlord borrowers’ place within it, which will be clearly noticeable to advisers – particularly over the last 12-18 months – is the nature of rates and their impact on affordability, mortgage costs, and ultimately the profitability of those properties.
Adaption
We were fortunate to have a very low interest rate environment for over 10 years, and while none of us believed this would last forever, the shock of rates rising – specifically in a very short space of time – was always going to hit hard. As a result, landlords are moving into areas which are able to deliver them a much higher rental yield than they might otherwise secure.
Data
Yields have increased significantly over the past year or so – the most recent data showing they were up to 5.6% in the last quarter of 2023 – and this has much to do with strong tenant demand and the relative shortage of supply.
However, the most recent BVA BDRC data also shows tenant demand may well be plateauing, or at least the perception of it from landlords. 63% of landlords reported increased tenant demand in the last three months of 2023, which was down by 80% on the previous quarter, and reflects a lack of certainty about how tenant demand might progress in the future.
Solutions
This is part of the reason why we recently improved the affordability criteria for shorter-term buy-to-let properties, lowering our notional stress rate from ‘the higher of 8% or pay rate plus 2%’ to ‘the higher of 6% or pay-rate plus 2%’. And, of course, it’s partly why we launched a new brand, ‘Solutions by Foundation’ purely focused on specialist criteria and products for mixed-use and multi-occupation buy-to-let properties for UK landlords and expats.
By doing this, we can allow borrowing up to 75% LTV on large HMOs, up to 10 bedrooms (this was eight previously), while we also have large HMO five-year fixes for properties with unlimited bedrooms. Clearly, it’s a more complex property type – favoured by experienced portfolio landlords – and means we can look at individual deals and structures and hopefully ensure the landlord borrower is able to secure the finance they need.
Why use Solutions by Foundation for MUBs and large HMOs? Find out here.
Our expectation is that we – and you - will see more interest, demand and activity in the HMO/MUB space and our new brand and team is here to support advisers supporting those clients who want a lender that understands the sector and can provide them with competitive financing to make the most of the investment.
Register with Foundation Home Loans here.
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