Investing in a buy-to-let mortgage at 75 per cent loan-to-value (LTV) now could bring you three times the value of the initial sum you put in, a new report by Wriglesworth Consultancy suggests.
Assuming house prices rise 4 per cent a year, rents by 2 per cent a year and mortgage rates rise to 5.5 per cent by 2022, every £1,000 invested at the end of last year using a 75 per cent LTV mortgage would be worth £2,874 by the end of 2024, according to the report.
This is an average annual return of 11.1 per cent and a 12.6 per cent return from net income.
People not using mortgages for a buy-to-let investment will get 6.1 per cent average annual return and 45.3 per cent return from net income. Their initial £1,000 could grow to £1,814 over the next ten years.
If these projections prove to be broadly correct buy-to-let looks set to maintain its reputation as a superior investment, Wriglesworth says.
The comparative analysis conducted by the consultancy, using 18 full years of data from the fourth quarter of 1996 to the last quarter of 2014, found that:
- Buy-to-let has been the outstanding investment of the past 18 years, providing average returns that easily outstrip those of other major asset classes.
- Every £1,000 invested in an average buy-to-let property purchased with a 75 per cent 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 per cent.
- A buy-to-let purchaser buying entirely with cash would have seen each £1,000 invested grow to £5,071 by the end of 2014 – a compound annual return of 9.4 per cent.
- 2014 was a good year for buy-to-let investors with property prices rising by an average 8.3 per cent over the course of the year. Wriglesworth’s index shows that mortgaged landlords achieved average returns of 18.3 per cent for the year, 81.9 per cent of which was comprised on capital gains. The unmortgaged index achieved returns of 7.9 per cent.
