A new report from buy-to-let lender, Landbay has shown that over the past 18 years, homes purchased for the sole purpose of letting them out to a tenant have generated average returns that outpace all other asset classes.
According to the report: “For 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%.”
In 1996, a buy-to-let borrower who spent £1,000 in cash with no mortgage would have seen their investment worth £5,071 by the end of last year – a compound annual return of 9.4%.
When compared to other asset classes, buy-to-let returns are far more impressive.
“Turning to the performance of the other main UK asset classes, commercial property was the best performing asset class after buy-to-let,” the report states.
The data shows that £1,000 invested in the UK’s commercial property market in 1996 would now be worth £4,494, in gilts or UK government bonds would have increased to £3,119 and in UK shares to £3,119 and in cash to £1,959.
“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,” John Goodall, chief executive of Landbay comments.
Looking towards the future, Landbay believes that buy-to-let property will continue to grow.
And with the introduction of pension reform, the sector may see an influx of landlords aged over 55 entering the market in a bid to unlock higher returns.