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Professional Landlords


GettinG professional


MFB takes a closer look at the mechanics of complex buy-to-let and explains what brokers need to know


Currently there are 25 high street and specialist lenders operating in the vanilla buy-to-let market offering an increasing number of off-the-shelf buy-to-let products. As of September 2011 Mortgages for Business calculated that there were around 450 products available. In 2007, pre-credit crunch, there were more than 600 products being offered by 15 lenders. This dipped to fewer than 100 from just two lenders in 2009. So it is clear to see that the market is recovering with many more lenders entering the fray. Our complex buy-to-let index for Q2 2011 reported steady growth across the vanilla sector. Average loan size and loan to value figures rose quarter-on-quarter, so too did average yields which reached 5.8%. This re-enforces press reports that rents are rising due to demand for rental properties continuing to outstrip supply. Residential properties and investors that do not meet standard buy-to-let lending criteria fall outside of the vanilla product range and are classed as complex buy-to- let. These include:


● Houses Multiple Occupation (HMO) ● Multi-unit free hold blocks (usually blocks of flats owned under a single freehold title)


● Semi-commercial properties ● Flats above shops ● Properties with unusual tenants ● Properties purchased by limited companies ● Investors with larger property portfolios (10+)


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Whereas vanilla buy-to-let mortgages are largely off- the-shelf products, complex residential investments are more bespoke in nature and only a handful of lenders offer finance including Aldermore, Paragon and Kent Reliance Banking Services. Access to these lenders is via limited distribution panels. Investors can’t simply pick up the phone to their bank. Instead they must go either to one of the lender’s specially selected intermediaries or to a broker that can deal with the intermediary on their behalf.


Higher yields Vanilla buy-to-let investors looking to enter the complex


market may initially be attracted by the higher yields. HMOs are now showing average yields of 10% - up from 9.3% last quarter. In terms of loan to value, a maximum of 75% can be attained for HMOs if the proposition is a strong one however the average LTV is lower at just 60%. Multi-unit freehold blocks (MUFB) also provide good returns for investors even though yields dipped slightly in Q2 to 6.6%, down from 7.4% in Q1. This is due to a rise in higher value MUFB purchases over the last three months which has put downward pressure on average yields. Average LTVs for MUFB deals stand at an average of 59% up from 56% last quarter. However, some mainstream lenders looking to reduce their exposure to risk are forcing MUFB investors to refinance elsewhere. This is reflected in the proportion


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