Gross yields on complex buy to let property in Q3 rose on all property types apart from semi-commercial, according to Mortgages for Business (MFB). The broker says that the driving factors behind the increase were a combination of falling property prices and high tenant demand.

Yields on standard buy to let increased from 6.1% to 6.7% over the quarter, thanks largely to the average property value falling by 3% between Q2 and Q3 to £210,197. MFB say this factor helped to push up the average LTV up from 64% to 68%, with lenders more willing to grant higher LTV deals thanks to lower property prices.

Houses in Multiple Occupation (HMOs) saw average yields jump from 9.2% in Q2 to 11.1% in Q3, triggered by a sharp increase in refinancing of cheaper HMO property, as these lower value properties tend to have a higher yield than more expensive properties.

Bucking the market trends was semi-commercial property (SCP), where gross yields fell from 7.4% to 7.1% between Q2 and Q3, despite the average property value falling by 26% from £1,054,913 to £779,761. Average loan sizes remained relatively flat, with lenders such as the RBS group wanting investors to refinance elsewhere as the state owned bank reduce their exposure to SCP property.

The number of lenders operating in the buy to let market remained at 25, while the number of products increased marginally to 465 from 456 in Q2, which suggests the market has found some stability following a recovery from the financial crash of 2008.

David Whittaker, managing director of Mortgages for Business, said: “The owner-occupier market is dragging property prices down, and it’s great news for buy to let investors, who are able to snap up cheaper property, usually at a higher LTV. It’s a fairly simple equation: suppressed property prices, plus strong demand for rented accommodation, equals higher yields for landlords.”