Investing in buy to let has given landlords an astonishing 1,400% return over the past 18 years, according to financial experts.
Buy to let has outperformed all other asset classes over that time – and is set to carry on doing so over the next decade, says research by buy to let mortgage lender Landbay.
The firm compared investment performance from the last quarter of 1996 to the end of 2014 to come up with their figures.
Quarter 4 of 1996 was set as the start date for the comparison as that was when the Association of Residential Letting Agents coined the term ‘buy to let’ as the sector opened up to ordinary investors with the advent of specialist mortgages.
The figures show that for every £1,000 invested in a rented home with a 75% loan to value mortgage in Q4 1996 had grown to £14,897 by the end of 2014.
Predicting future growth
This equals a compound annual return of 16.2% since 1996.
The firm says investing £1,000 in 1996 into other assets would have returned much less:
- Commercial property returned £4,494
- Treasury bonds (gilts) returned £3,329
- Buying equities returned £3,119
- Cash returned £1,959
Analysts also projected the likely returns on buy to let investment over the next decade, assuming property prices rise 4% annually, rents go up 2% a year and mortgage interest rates rise to 5.5% by 2022.
The forecast revealed that every £1,000 invested in a buy to let at the end of 2014 on a home with a 75% LTV mortgage would grow to £2,874 by Q4 2024 – returning an average11.1% a year.
Landbay chief executive John Goodall said: “These returns show why buy to let is good for lenders. Landlords are not risky prospects as they have sound finances and property may sometimes drop in value, but over the long term keeps rising.
Peer to peer lending
“The market is still evolving. Over recent years, specialist lenders have dominated the market, but now crowdfunding and peer to peer lending is moving in to revolutionise finances for landlords.
“Not only does this give landlords more choice over borrowing, but investors who cannot afford to enter the market can still make a decent returning from providing lenders with relatively small amounts of cash.”
Landbay is a buy to let peer to peer lender taking in small deposits from investors that are pooled to provide larger loans to landlords.
The firm offers three year fixed rates at 4.4% and tracker rates at 3.5%.