What Properties Types Are Buy-To-Let Investors Looking For?
Recent research released by Paragon Mortgages gives us an idea of the property types currently in vogue for buy-to-let investors. Their Private Rented Sector Survey is conducted for every quarter of the financial year and assesses the property preferences of landlords looking to expand their portfolio.
The most striking result of their research is the growth in interest in semi-detached properties during Q1 of 2015 and the corresponding drop in interest in terraces. Of those asked in the last quarter of 2014, there were only 23 per cent who expressed a preference for investing in semi-detached properties. That figure has risen to 35 per cent in Q1 of 2015.
Similarly the number of landlords interested in terraced homes saw a considerable drop, from 67 per cent down to 35 per cent in the first quarter of 2015. Of those landlords surveyed, 30 per cent were also considering investing in a flat, and 35 per cent saw detached homes as an appealing purchase for the purpose of renting. 22 per cent of the landlords asked were interested in investing in houses in multiple occupancy (HMO) and multi-unit blocks.
What to make of the figures? Well, for a start they illustrate the diversity of rental properties available today. And, in turn, this points to the type of demand there is in England and Wales. That we see landlords interested in everything from detached homes to flats is a reflection that many families are today renting their homes, along with the classic profile of young professionals looking for flats and terraces to rent. The shift towards more semi-detached homes over terraces may well be a direct result of this
Despite rises in income, house prices remain high and beyond the means of many. Since the introduction of the Mortgage Market Review in April last year, gaining a mortgage has become much tougher for prospective buyers. The knock-on is greater and more diverse demand within the rental sector.
The other interesting figure is the amount of interest in HMOs and multi-unit blocks. What is interesting about this is that these have been the best performing types of rental property over the last few years for landlords. And yet only 22 per cent of landlords showed an interest in investing in them.
Figures from the brokers Mortgages for Businesses show that yields from traditional rental properties like houses stood in Q4 of 2014 at 6.3 per cent in the UK. Both multi-unit blocks and HMOs yields stood at 9.3 per cent at the same point.
So why aren’t more landlords looking to invest in these properties? Well, cost is the major issue. Outside the capital, a block of flats ready to rent out will cost £500,000. In London, it will set landlords back £4 million.
With letting and maintenance fees for each apartment taken off the gross yield, what a landlord actually receives turns out to be not dissimilar to that a landlord can make on a semi-detached or terraced home.