Find out what’s happening in the property investment arena both in the UK and internationally
Buy-to-let comes of age with 1,200% returns for early adopters
May 1, 2014Article by Ray Withers
This year marks the 18th birthday of the buy-to-let mortgage. The initiative from the Association of Residential Letting Agents and mortgage finance lenders across the UK opened up buy-to-let as an investment option in 1996, revolutionising property investment attitudes and practices within the UK.
Coming of age
18 years later, a report from the Wriglesworth Consultancy reflects on the impact of buy-to-let and how investors have fared compared with those who invested in the UK’s other main asset classes. The findings make for interesting reading, as Property Frontiers Chief Executive Ray Withers explains,
“As property investment experts, it comes as no surprise to us here at Property Frontiers that buy-to-let has proven to be an exceptional investment option over the years. What is fascinating, though, based on the Wriglesworth report, is the extent to which buy-to-let investment has outstripped every other asset class over the past 18 years.”
A leading position
Indeed, the report confirms buy-to-let’s leading position as the outstanding investment, showing that every £1,000 invested in an average buy-to-let property (assuming the purchase was made with a 75% loan-to-value mortgage) in the final quarter of 1996 would be worth £13,048 as at the final quarter of 2013.
The compound annual buy-to-let return rate of 16.3% compares extremely favourably with the returns that would have been generated by other asset classes. The same £1,000, for example, would have returned £3,654 from a UK commercial property investment, £3,082 from UK equities, £2,924 from gilts or £1,949 from cash. Withers continues,
“The level to which buy-to-let has performed is remarkable and the truly marvellous thing is that it continues to be the UK’s strongest-performing asset class to this day. This is why Property Frontiers is currently presenting its clients with a range of luxury developments as buy-to-let investment opportunities, from iconic apartments in Birmingham (from £104,500 – up to £700 per sqm cheaper than comparable developments), through waterfront apartments in Liverpool (from £82,500 with 8.5% gross yield guaranteed in year one), to prime city centre apartments in Bradford (from £50,000 with 50% LTV developer finance available).”
According to the Wriglesworth data, 32% of the returns made by the mortgaged buy-to-let investor took the form of rental income (less costs), while capital gains accounted for the other 68%.
Looking ahead, the report backs up Withers’ positivity about the future of buy-to-let as an asset class. Using various assumptions (4% house rises per year, 2% annual rent rises and 5.75% mortgage rises by 2020), it projects that every £1,000 invested at the end of 2013 (again using a 75% LTV mortgage) would be worth £2,910 a decade later. This translates to an average annual return of 11.3%.
Should the predictions come to pass – and indications based on the trends of the past 18 years suggest that they will – the future of buy-to-let as an asset class within the UK looks to be bright indeed.