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Buy-To-Let Landlords Earn Returns Of Up To 1,400% Since 1996

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http://www.theguardian.com/money/2015/apr/11/buy-to-let-landlords-earn-returns-of-up-to-1400-since-1996


Buy-to-let landlords have hit the investment jackpot by earning returns of almost 1,400% since 1996, leaving the performance of shares, bonds and cash trailing in the wake of Britain’s property boom.

The revelation drew criticism from housing campaigners, coming in the same week that a major report claimed rocketing house prices and years of stagnant wage growth have prompted a growing number of younger people to give up the idea of ever owning their own home.

On average, £1,000 invested in a buy-to-let asset in the final quarter of 1996 was worth £14,987 by the end of last year, according to analysis by economists at the Wriglesworth Consultancy for lender Landbay, published on Saturday. This was more than four times than the equivalent investment in commercial property, UK government bonds or shares and seven times the return on cash.

Years of rising house prices mean that despite the slump after the financial crisis, property investors who bought 18 years ago are still sitting on large capital gains. Rising rents have also boosted returns in recent years, to the consternation of the campaign group Generation Rent.

Seb Klier, policy manager for the group, said the popularity of property as an investment was bad news for tenants.

“Investment in existing properties sucks money out of the economy by funnelling tenants’ pay packets into the pockets of landlords,” he said. “An investor who bought, say, equities instead would be putting money into the wider economy, creating jobs and wealth for others.”

A report published by Halifax this week said the proportion of people aged 20-45 putting money aside for a deposit had been steady for three years but fell last year by six percentage points to 43%, signalling that lower levels of ownership might become “the new normal”.

According to the Wriglesworth analysis, the £14,987 generated by buy-to-let landlords from a £1,000 investment compares with £3,329 for UK gilts – a return of more than 230% – and £3,119 for equities – a return of more than 210%.

The research, based on Nationwide’s house price index and rental data from the Office for National Statistics and the property firm LSL, looked at returns for a landlord taking out a 75% loan-to-value mortgage to help finance the investment, so borrowing £3,000 to invest alongside every £1,000 of their own money.

Andrew Montlake, director of the mortgage broker Coreco, said professional landlords tended to use mortgages to fund their portfolios even if they had enough cash to buy property outright. “They get tax relief on the interest and it means that they have cash to buy more properties – if they bought in cash they would be able to buy fewer homes and they would pay more tax on the rental income coming in,” he said.

Even without any borrowing, a buy-to-let property has still outperformed other mainstream investments, the report said, returning £5,071 for every £1,000 put in.

The analysis assumed a buy-to-let investor would use rental income to pay off their mortgage, clearing it after 13 years and banking it in the final five. Had they instead kept borrowing against the property, taking equity to fund new purchases, it found that an investor could have bought 10 homes in total and turned £1,000 into £34,732.

“What this scenario helps to illustrate is how buy-to-let has not only provided very strong returns for average investors since 1996 but how it has enabled a cohort of ambitious investors to become seriously wealthy,” the report said.

David Lawrenson, a landlord and buy-to-let consultant, said the ability to borrow money to invest was a key point in favour of buy-to-let. “I have other investments in stocks and shares but the properties I’ve bought in London and the south have generated far better returns,” he said. “But a lot depends on where people have bought. If you buy the wrong sort of property in the wrong place you are not going to make anything and you may lose a lot of money.

“Lots of people who bought oversupplied new-build flats in many parts of the north and Midlands of England between 1998 and 2004 will have found this out the hard way.”

The total return of £14,897, equivalent to a compound annual return of 16.2%, was boosted by price rises of 8.3% in 2014, when the property market recovered from its post-crisis slump. Capital gains over the 18-year period came to £153,400, the report said, while 29% of the average return came in the form of rental income, after costs had been taken into account. The report said the average property would have provided net income of more than £6,400 in 2014.

Investing in a property is likely to take more effort than putting money into a savings account or buying a fund, and can attract unexpected costs. Lawrenson said he allowed £150 a month from rent for each of his properties to cover bills, and said that with maintenance costs pretty similar around the country, the impact would be greatest on landlords whose properties achieved low rents.

Residential property started to become a mainstream investment in 1996 with the launch of the buy-to-let initiative by the Association of Residential Letting Agents and a group of mortgage lenders. This made loans available to private landlords who were not looking to buy a large portfolio of properties.

Recent figures from the Council of Mortgage Lenders showed that 197,700 buy-to-let mortgages were taken out in 2014, including remortgages. Research by the lender Paragon found that 92% of investors had bought to supplement their income, while just 8% were professional landlords.

Low savings rates and rising property prices and rents have made buy-to-let attractive to consumers, while lenders have been fighting to offer the best deals.

Many landlords who bought property before the financial crisis are on interest rates tracking the Bank of England base rate and have seen their costs plummet since it dropped to 0.5%. “They are coining it in – they’ve benefited from unprecedented property price rises and their rates are rock bottom,” said Montlake.

The average house price at end of 1996 was £55,000 and a buy-to-let investor would have needed 25% of that as a deposit to get started.

Buy-to-let mortgages are not subject to new lending rules which came into force last year, and banks and building societies keen to build market share have been relaxing restrictions on buy-to-let loans and cutting interest rates. New landlords with a 40% deposit can access interest-only mortgages priced as low as 1.95%, or at 5.09% with just a 15% deposit.

...then Labour happened in '97...

Edited by Dave Beans

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They are talking about leverage I believe. You could have leveraged up on other assets to make big returns.... or not.

If I look at the places I own the price has scarcely moved since 2005 (2 bed properties, south coast). Arguably I'd have been much better selling in 2005 and buying shares.

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They are talking about leverage I believe. You could have leveraged up on other assets to make big returns.... or not.

Banks won't give you a mortgage to invest in the stock market.

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God Bless the English and their pwoperdee madness. The state still owns 80% of RBS through UKFI and it seems that five or so years down the line we've already forgotten that it was borrowing money to buy houses because house prices were going up because people were borrowing money to buy houses that blew up the banks. Short little span of attention, as the fellah says. I've been crawling around in the detail, and came to the conclusion that this process is locked in. The banks are going to sucker as many people into BTL as they can before the bubble goes. Getting into buy-to-let on wafer thin positive net cash flows in this interest rate environment at present price levels is financial suicide.

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....what I would like to know is where they think all these guaranteed increasing rents are supposed to be coming from?......golly good luck with that. ;)

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God Bless the English and their pwoperdee madness. The state still owns 80% of RBS through UKFI and it seems that five or so years down the line we've already forgotten that it was borrowing money to buy houses because house prices were going up because people were borrowing money to buy houses that blew up the banks. Short little span of attention, as the fellah says. I've been crawling around in the detail, and came to the conclusion that this process is locked in. The banks are going to sucker as many people into BTL as they can before the bubble goes. Getting into buy-to-let on wafer thin positive net cash flows in this interest rate environment at present price levels is financial suicide.

The building society association has a list of the demutualised building societies. Alot of these lot were heavy into the BTL.

http://www.bsa.org.uk/information/consumer-factsheets/general/list-of-demutualised-building-societies/

I wonder why they picked 1996 :).

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Banks won't give you a mortgage to invest in the stock market.

We're talking about a leveraged investment. You have your stake (aka deposit) and you make a bet on which way the market goes. You could do this on FX, Shares or houses. So the claim of 1500% returns is misleading in comparison with other investments.

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The building society association has a list of the demutualised building societies. Alot of these lot were heavy into the BTL.

http://www.bsa.org.uk/information/consumer-factsheets/general/list-of-demutualised-building-societies/

I wonder why they picked 1996 :).

It makes the headline a nice round number, and for maximum effectiveness for the vested interest. I sometimes have to produce posters to show the best light. You've got to know how to play the numbers.

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It makes the headline a nice round number, and for maximum effectiveness for the vested interest. I sometimes have to produce posters to show the best light. You've got to know how to play the numbers.

As expected.

The author of the article, Hilary Osborne.

Her twitter https://twitter.com/hilaryosborne

"Editor of Guardian Money website. You may know me from such stories as 'House prices rise' and 'Shock fall in house prices'"

So the vested interest is to generate polarised views to get more readers. Case Closed, my work is done here - NEXT!

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I was talking to my brother about the price of houses in the south east,and i remember the exact same conservation with my dad in 1989 he said "no one up this (his) street who wanted to buy today could afford a house unless both couples are doctors/dentists and such like".......then the market went BOOM and in 1991 I bought a 3 story 3 bed victorian terrace for £51k off a guy who bought it 3 years prior for £85K, I was a clerk at the civil service!!!

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