A recent survey has discovered that buy-to-let investments have performed better than all other mainstream investments over the last 18 years. During this period, landlords have enjoyed yearly returns in excess of 16%.
Economist Rob Thomas, working on behalf of The Telegraph, recently conducted an investigation to see how much a starting deposit of £1,000 invested into various asset classes in 1996 would be worth in the present day. Thomas chose the final three months of 1996 as his starting point as this was when buy-to-let mortgages were introduced.
Thomas found that every £1,000 invested into a standard buy-to-let property with a 75% loan-to-value (LTV) mortgage yielded £13,048 by the end of 2013. This gave an average annual yield of around 16%.
Rent is the Next Big Asset Class
He also found that a cash buyer would have seen their original £1,000 improve to £4,791 by the end of 2013, a compound yearly return of 9.7%.
The same investigation concluded that depositing the same amount into UK commercial property in 1996 would have led to a return £3,654. Similarly, if the money was deposited into UK equities, each £1,000 would now be worth £3,082. UK government bonds would have risen to £2,924.
Looking to the future, the report suggested that buy-to-let yields would continue to outdo other asset classes over the next ten years. However, with interest rates widely expected to rise, industry experts are questioning if now is the correct time to invest in the buy-to-let market.
Concerns are rising that some buy-to-let investors could see their rental income fall below their mortgage costs by the year 2017, if, as estimated, interest rates rise to 3%. The concern is predominantly felt by landlords who invested late in the market, or have borrowed against existing properties in their portfolio.