The launch of buy-to-let mortgages 18 years ago began a rapid rise of investment in properties, with landlords looking to capitalise on the number of people who were not in a position to buy their own homes, but who could rent.
According to a new report published by Paragon Mortgages, investing in buy-to-let property has proved to be a very astute decision for those that chose to do so, as investors have made £12,000 profit on every £1,000 they put into property since 1996. These returns are extremely positive and far outstrip any other type of investment.
This equates to annual rate of return of 16.3 per cent a year, which has been driven by the rapid rise of house prices in the UK in the last twenty years. In the same period shares would have earned investors 6.8 per cent a year, bonds 6.5 per cent and savings in the bank just four per cent.
The company believes that the good returns will continue for landlords and buy-to-let property purchases, predicting an average of 11 per cent profit for the next ten years.
Paragon’s John Heron said: “Buy-to-let mortgages have become such an integral part of today’s mortgage market that you easily forget that the product didn’t exist prior to 1996. The private-rented sector remains an important and growing sector and now represents 18 per cent of the UK’s housing market.”
While the news is extremely positive for those willing to invest in buy-to-let property, many experts have warned that taking on a number of properties and letting them to tenants is not as simple as it may sound.
It is important to remember that some of the rental income from properties will go towards costs such as maintenance, insurance and management fees, which equates to around 20 or 30 per cent of a yearly rental income.
Stephen Rees, head of real estate at Coutts, told the Financial Times: “So of £1,000 a month, you’ll take home about £700 after expenses.”