18 year comparison index shows UK buy to let outstripping other asset classes

Taylor Scott International News

Buy to let in the UK over the past 18 years has provided average returns that outstrip those of other major asset classes, new research shows. 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, a compound annual return of 16.2%. The same investment in UK commercial property would have grown to £4,494, in gilts or UK government bonds to £3,329, in UK shares to £3,119 and in cash to £1,959, according to the research from buy to let lender Landbay. 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 report points out 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. The index shows that mortgaged landlords achieved average returns of 18.3% for the year, 81.9% of which was comprised on capital gains while the unmortgaged index achieved returns of 7.9%. The figures cover 18 years with a comparison from 1996 as this was 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. ‘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,’ said John Goodall, chief executive of Landbay. ‘However, the bigger trend underlined here is the democratisation of such investments, which started a generation ago, and is far from complete. Buy to let itself is only one example of this shift. Now new models of peer to peer finance can give access to the returns involved in lending to such industries. Since 1996 ordinary investors have been able to be landlords, but now in 2015, ordinary investors can play the role of the bank,’ he explained. 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 to 2014 period. ‘If these projections prove to be broadly… Continue reading →

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