Buy-to-let landlords benefit from booming property market as returns of nearly 1,400% since 1996 beat all other investments
04-13-2015
•£1,000 invested in a buy-to-let property in 1996 was worth £14,897 last year
•The report looks at returns from investors who bought a property with a 75 per cent loan-to-value mortgage
•The average price of a house in 1996 was £55,000
By Camilla Canocchi for Thisismoney.co.uk
Buy-to-let landlords have been reaping the benefits of the booming property market as they made returns of almost 1,400 per cent over the past 18 years, beating all other types of investment, a new study suggests.
On average, every £1,000 invested in a buy-to-let property in 1996 was worth £14,897 last year, four times as much the equivalent investment in commercial property, which was worth £4,494 at the end of 2014.
Analysis showed that buy-to-let investments also outperformed UK Government bonds, which on average made returns of £3,329 for every £1,000 invested in 1996, UK shares, which were worth £3,119 and cash, which made returns worth £1,959.
Buy-to-let: Such investments outperformed UK Government bonds, investment in commercial properties, UK shares and cash
The report by economists at Wriglesworth Consultancy for lender Landbay looked at returns from investors who bought a property with a 75 per cent loan-to-value mortgage.
It shows that landlords who borrowed to purchase the buy-to-let property made significantly higher returns than those who paid in cash.
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A buy-to-let landlord buying entirely with cash saw each £1,000 invested grow to £5,071 by the end of 2014 - a compound annual return of 9.4 per cent compared to a 16.2 per cent return made by investors who borrowed.
‘What this scenario helps to illustrate is how buy-to-let has not only provided very strong returns for average investors since 1996 but how it has enabled a cohort of ambitious investors to become seriously wealthy,’ says the report.
‘The combination of strong house price growth and the ability to gear a portfolio has allowed a new class of millionaires to emerge in a way that has generally not taken place with investors in the other asset classes we have considered,’ it continues.
The average price of a house in 1996 was £55,000. Last year property prices rose 8.3 per cent to £189,000, Wriglesworth said. Years of house price rises and rising rents have helped landlords make healthy returns on their properties.
The report suggests that the average buy-to-let investor who started with a 25 per cent deposit in 1996 paid off the mortgage in 13 years and generated an annual net income of £6,400 in 2014.
It also found that capital gains in the 18-year period were £153,400, while 29 per cent of the average return came from renting out properties.
The study comes as separate recent data has showed that fewer young people are saving towards a deposit as high house prices and low wages put them off from even trying to get on the property ladder.
Halifax said its latest Generation Rent report strengthened the view that more people may be giving up on owning their own home and were instead accepting long-term renting. It found that the proportion of people aged between 20 and 45 putting money aside to buy a house has dropped from 57 per cent last year to 43 per cent this year.
Investing in property started to become popular in 1996 with the launch of the buy-to-let mortgage initiative by the Association of Residential Letting Agents and leading buy-to-let mortgage lenders.
Mortgage lending to buy-to-let investors continued to rise in January but advances to first-time buyers fell to their lowest level in 21 months, according to recent Council for Mortgage Lenders data.
Would-be landlords saw a 5 per cent monthly rise in mortgage advances to 18,200 to a total of £2.5billion in January, but first-time buyers saw a 14 per cent fall to £2.8billion.