A new report has shown property expert Simon Morris that yields fell for semi commercial property landlords in the first quarter of 2015.
Semi commercial property yields
A semi-commercial property is a residential property that’s also used for business purposes. The semi-commercial property sector was quicker to recover from the economic crash than the residential property market at large. At the height of the crisis in 2011, it recorded returns of 7.8%, a figure that was only bested by houses in multiple occupation (HMOs), at a yield of 9.9% for the year.
Data quoted by Mortgages For Business show that yield rates for semi commercial property have been rockier over the last few quarters. The sector recorded a yield of 6.4% in the last quarter of 2014, however this rose to 7.5% for the first quarter of 2015. In contrast, HMOs recorded a yield of 9.0% in Q4 2014 and 10.4% for Q1 2015, whilst vanilla buy-to-let earned yields of 6.3% for Q4 2014 and 6.4% for Q1 2015. Furthermore, multi-unit freehold blocks (MUFB) saw yields of 9.3% for Q4 2014, and 6.3% for Q1 2015.
Yield falls in Q2 2015
Mortgages for business have now released their data for the second quarter of 2015. Property Wire reported that this indicates that yield rates for semi commercial property sunk to 5.9% for the second three months of this year.
Meanwhile, yield for HMOs also dropped in the second quarter of 2015. Yield for this sector decreased 1.3% to 9.3%. Furthermore, yield for vanilla buy-to-let declined to 5.8% in Q2 2015, however yields for MUFBs rose to 7.1%.
LTVs decline in Q2 2015
Loan to value ratios also slipped in several residential property sectors. Semi commercial property registered the largest decline, falling from 64% in Q1 2015 to 54% in Q2 2015, whilst LTVs for HMOs dipped 1% to 69%. However, LTVs for MUFBs and vanilla buy-to-let remained at 67% and 66% respectively in the second three months of 2015.
David Whittaker, the managing director of Mortgages for Business, commented on the data. He said: “LTV ratios and yield rates have slid. While rental yields are still robust they seem to have lost the momentum they were gathering between the end of last year and the start of this one. That said, multi-unit freehold blocks seem to have avoided the yield downturn, demonstrating once again that complex property types produce higher yields because they offer tenants more features and facilities.”
Whittaker went on to note: “While many landlords had hoped that the improving economic climate may have pushed loan to value ratios even higher, the figures appear to have stalled. Property values dipped in the second quarter, but so did average loan amounts, suggesting lenders are waiting for more signs of economic improvement before they lend any more relative to the value of a property.”
Consider the risks
In Simon Morris’ opinion, now is the time for semi commercial property investors to rethink their strategy and consider the risk of pursuing it. Is there an area of the UK property market that can be more beneficial? Morris would also suggest that if you’re thinking of moving away from semi commercial to invest a pension in vanilla buy-to-let, you download his new guide, to gain a greater understanding of the risks involved.