Buy to let beats all other investments since 1996
A study by Paragon Mortgages has revealed that buy to let has hugely outperformed other mainstream investment classes since 1996. Landlords could have seen returns of 16.3% at the end of 2013, assuming a 75% loan to value mortgage. This works out at £13,048 for every £1,000 put in. A cash investor in buy to let, on the other hand, would have seen every £1,000 in a buy-to-let property purchase in 1996 worth £4,791 by the end of 2013, a compound return of 9.7%. Over the same period you would have got just 7.9% from commercial property, 6.8% in shares, 6.5% in bonds and 4% in cash.
The report also predicts that buy to let will continue to beat other investments over the next decade, despite forthcoming interest rate rises. This is partly due to the Mortgage Market Review (MMR). New rules were brought in for residential mortgages on 26 April. There are tougher affordability requirements with more information on spending required. It is thought that this could encourage lenders to focus on buy to let customers, meaning deals could stay appealing despite rate increases.
Surge in buy to let but strong capital growth will cause yields to fall
The surge of interest in buy to let continued through the first quarter of 2014, according to Waterfords. Part of that appeal was the strong projected capital growth of buy to let properties, with Savills estimating a house prices increase of 25% over the next 5 years. The converse of this, of course, is that yields on newly-bought buy to let properties will suffer. Although rent levels are around 8% higher than last year, yields are expected to drop from the 2013 level of 5.6% to 5.17% by 2016.
New Mortgage Options
Last week we reported on the new offers from the lenders Keystone and Coventry. It is worth emphasising that these are three and five year fixed-rate mortgages. Many lenders are recommending that buy to let investors switch to a long term fixed rate. The Bank of England is suggesting the first round of interest rate rises may not be too far off.
Landlords with higher deposits may benefit from TBMC’s recently launched lifetime discount. It is available for mortgages with a loan to value of up to 60%. Always talk such decisions through with a qualified independent mortgage advisor.
Rentify’s Tip of the Week
Another day, another reason to watch out for bad letting agents (if another reason is needed). Tenants who rented with agent Daniel Burton lost their deposits after he was expelled from his insurance-based scheme for failing to comply with regulations. Although he had followed the law by putting the money into the scheme, his expulsion shows there is a dangerous gap in the protection for tenants. The tenants were warned that their money was no longer protected but this did not prevent Mr. Burton from going off with it. Double check that your tenants’ deposits truly are protected by a scheme. Landlords and agents cannot be expelled from custodial schemes so always consider this type.