Over the past 18 years, buy-to-let has been an outstanding investment, providing average returns that easily outstrip those of other major asset classes
Buy-to-let comes of age in Liverpool and throughout the UK.
Over the past 18 years, buy-to-let has been an outstanding investment, providing average returns that easily outstrip those of other major asset classes, according to a report by the Wriglesworth Consultancy – commissioned by Paragon Mortgages.
Since 1996, when buy-to-let mortgages were launched by the Association of Residential Letting Agents (ARLA) and buy-to-let mortgage lenders, they have returned over 1,200 per cent for investors in Liverpool and around the UK.
Using conservative reinvestment assumptions, every £1,000 invested in an average buy-to-let property purchased with a 75 per cent loan-to-value (LTV) mortgage in the final quarter of 1996 would have been worth £13,048 by the final quarter of 2013.
This is a compound annual return of 16.3 per cent. The same investment in UK commercial property would have grown to £3,654; in UK equities (shares) to £3,082; in gilts (UK government bonds) to £2,924; and in cash to £1,949.
Around a third (32 per cent) of the total return to the mortgaged buy-to-let investor was income (rent less costs), and 68 per cent capital gains.
A buy-to-let purchaser buying entirely with cash would have seen each £1,000 invested grow to £4,791 by the end of 2013 – a compound annual return of 9.7 per cent.
The alternative of the investor who remortgaged to release equity to expand his/her portfolio more quickly would have turned £1,000 into an astonishing £33,051 with the correct advice from a leading letting agency such as Belvoir Lettings.
The report includes a 10-year projection for buy-to-let returns assuming house prices rise 4 per cent a year, rents by 2 per cent a year and mortgage rates rise to 5.75 per cent by 2020.
Projections suggest that every £1,000 invested at the end of last year using a 75 per cent LTV mortgage would be worth £2,910 by the end of 2023 – an average annual return of 11.3 per cent.
The corresponding annual return for an unmortgaged investor would be a more modest 6.3 per cent, which is similar to the rate of return from gilts and equities over the 1996-2013 period.
Rob Thomas, director of research at the Wriglesworth Consultancy and author of the report, said: “We believe this is the most detailed analysis of long-term buy-to-let returns undertaken to date.
"It should be invaluable for investors seeking to understand the relative performance of different investments over the longer term and shows the outstanding average returns enjoyed by buy-to-let investors over the past 18 years or so.”
John Heron, director of mortgages at Paragon, added: “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.
"Buy-to-let has increased the number of properties available to rent in the UK, providing homes for over four million householders. The private rented sector remains an important and growing sector and now represents 18 per cent of the UK’s housing
If you are intIf you are interested in starting or building a buy to let investment portfolio or pension fund, then contact Alex Molyneux on 0151 256 0880 for further information in investing in apartments or houses in Liverpool.