Buy-to-let returns rise more than 2000% in 30 years

Landlords who bought at the birth of the buy-to-let mortgage have seen returns rivalling the world’s best asset classes, according to new data.

Research by Hamptons suggested that every £1 invested in the average buy-to-let property in Britain in late 1996 generated £22.30 in total returns by 2026.

It represents a total return of 2,130% during this period, with the findings based on ONS house price and rental growth figures.

It compared to the S&P 500, which returned £22.05 per £1 invested during the same period with dividends reinvested. It is equivalent to 2,105%.

Today’s largest portfolios often started off life in the late 1990s.”

Hamptons also claimed that both property and US shares delivered nearly three times the returns of the FTSE 100, at £8.96 per £1 or 796%, and gold at £7.36% per £1 or 636%.

Meanwhile, most of the returns from buy-to-let came from income rather than capital growth.

Almost two-thirds – at 62% – came from rent paid by tenants, with the remaining 38% from rising property prices.

However, the picture has reversed more recently. Cumulative returns in the past five years stand at 75% for the S&P 500 and 73% for the FTSE 100, against 41% for residential buy-to-let.

Changing faces

The research went on to reveal how the profile of landlords has changed, with the average landlord being 37-years-old, buying with an average price of £54,900, a deposit of 29% and a mortgage rate of 7.76%.

Despite this high cost of borrowing, 88% opted for a repayment buy-to-let mortgage.

It compares today to the average buy-to-let purchaser being 51 years old and paying £360,000, more than six times the 1996 figure. Deposits are little changed at 27%, while rates average 4.52%.

Borrowing shift

At the same time, seven out of 10 mortgage buy-to-let purchases today are interest-only, while fixed rates account for 99% of buy-to-let lending, up from 26% in 1996.

Aneisha Beveridge, Head of Research at Hamptons, (pictured) says: “When the buy-to-let mortgage was launched in 1996, few predicted it would become one of the largest wealth-creation engines of modern British history.

“It opened the door to a new breed of middle-class investor seeking bricks-and-mortar security when buying property outright was out of reach. While these investors were in their 30s back in the 1990s, many remain landlords in their 60s today.

It opened the door to a new breed of middle-class investor seeking bricks-and-mortar security when buying property outright was out of reach.”

“However, the profile of landlords has shifted over the course of a generation. What began as a relatively accessible investment for first-time landlords in their 30s has evolved into a more professionalised sector dominated by older, experienced investors. The number of younger landlords dabbling in buy-to-let on the side of a day job is increasingly rare.

“Today’s largest portfolios often started off life in the late 1990s and have accrued substantial equity through successive house price booms, creating equity which has often been reinvested.

“For a growing number of landlords, those properties are now part of a wider family business that is likely to be passed down to the next generation rather than being sold off in the face of rising tax rates.”