11th April 2015
Buy to let has been the outstanding investment of the past 18 years, providing average returns that easily outstrip those of other major asset classes new research suggests. A report sponsored by peer to peer lender Landbay and conducted by consultancy Wriglesworth says £1,o00 could have been turned into nearly £15,000.
The research suggests that for every £1,000 invested in an average buy-to-let property purchased with a 75% loan-to-value (LTV) mortgage in the final quarter of 1996 would have been worth £14,897 by the final quarter of 2014. This amounts to a compound annual return of 16.2%.
The same investment in UK commercial property would have grown to £4,494 in gilts (UK government bonds) to £3,329; in UK equities (shares) to £3,119; and in cash to £1,959.
A buy-to-let purchaser buying entirely with cash would have seen each £1,000 invested grow to £5,071 by the end of 2014 – a compound annual return of 9.4%.
The research also shows that 2014 was a good year for buy-to-let investors with property prices rising by an average 8.3% over the course of the year. Our index shows that mortgaged landlords achieved average returns of 18.3% for the year, 81.9% of which was comprised on capital gains. The unmortgaged index showed returns of 7.9%
Rob Thomas, director of research at the Wriglesworth Consultancy and author of the report says: “Last year for the first time we produced what we believe is the most detailed analysis of long term buy-to-let returns undertaken to date. Today we release the results updated for 2014 – meaning we have 18 years of comparative data on investment returns.
“It should be invaluable for investors seeking to understand the relative performance of different investments over the longer term and shows the outstanding average returns enjoyed by buy-to-let investors over the past 18 years.”
John Goodall, chief executive of Landbay, says: “The phenomenon of buy-to-let as an asset class only goes to underline the stable personal finances of landlords. The stability of returns shown in this paper underlines why this group of borrowers can be so attractive for lenders. In fact the history of buy-to-let can be viewed as a history of opportunity for those offering the financial backing to landlords.”
The report includes an updated 10 year projection for buy-to-let returns assuming house prices rise 4% a year, rents by 2% a year and mortgage rates rise to 5.5% by 2022.
The projections suggest that every £1,000 invested at the end of last year using a 75% LTV mortgage would be worth £2,874 by the end of 2024 – an average annual return of 11.1%. The corresponding annual return for an unmortgaged investor would be a more modest 6.1% (but not far short of the rate of return from equities over the 1996-2014 period).
The comparison begins in 1996, the year the buy-to-let mortgage initiative was launched by the Association of Residential Letting Agents (ARLA) and buy-to-let mortgage lenders, opening residential rental property to ordinary investors.