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18 year comparison index shows UK buy to let outstripping other asset classes
Buy to let in the UK over the past 18 years has provided average returns that outstrip those of other major asset classes, new research shows. Every £1,000 invested in an average buy to let property purchased with a 75% loan to value (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%. The same investment in UK commercial property would have grown to £4,494, in gilts or UK government bonds to £3,329, in UK shares to £3,119 and in cash to £1,959, according to the research from buy to let lender Landbay. 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%. The report points out that 2014 was a good year for buy to let investors with property prices rising by an average 8.3% over the course of the year. The index shows that mortgaged landlords achieved average returns of 18.3% for the year, 81.9% of which was comprised on capital gains while the unmortgaged index achieved returns of 7.9%. The figures cover 18 years with a comparison from 1996 as this was the year the buy to let mortgage initiative was launched by the Association of Residential Letting Agents (ARLA) and buy to let mortgage lenders, opening residential rental property to ordinary investors. ‘The phenomenon of buy to let as an asset class only goes to underline the stable personal finances of landlords. The stability of returns shown in this paper underlines why this group of borrowers can be so attractive for lenders. In fact the history of buy to let can be viewed as a history of opportunity for those offering the financial backing to landlords,’ said John Goodall, chief executive of Landbay. ‘However, the bigger trend underlined here is the democratisation of such investments, which started a generation ago, and is far from complete. Buy to let itself is only one example of this shift. Now new models of peer to peer finance can give access to the returns involved in lending to such industries. Since 1996 ordinary investors have been able to be landlords, but now in 2015, ordinary investors can play the role of the bank,’ he explained. The report includes an updated 10 year projection for buy to let returns assuming house prices rise 4% a year, rents by 2% a year and mortgage rates rise to 5.5% by 2022. The projections suggest that every £1,000 invested at the end of last year using a 75% LTV mortgage would be worth £2,874 by the end of 2024, an average annual return of 11.1%. The corresponding annual return for an unmortgaged investor would be a more modest 6.1% but not far short of the rate of return from equities over the 1996 to 2014 period. ‘If these projections prove to be broadly… Continue reading
Financial barriers preventing US home renters from buying, new research suggests
Many US home buyers can break even in less than two years if they buy a home instead of renting it, but financial barriers and preference are big factors in the decision to continue renting. A new report covering the fourth quarter of 2014 from US real estate data firm Zillow reveals that buyers break even on a home purchase in less than two years in 66% metro areas. It also says that some 20% of renters say they prefer to rent than buy with more than half, 53%, say financial limitations keep them from buying. Of renters surveyed by Zillow some 16% said they can't qualify for a home loan, 18% said they can't afford taxes, maintenance and other costs associated with home ownership, 13% said they don't have enough savings for a down payment and about a quarter said they struggle to pay their rent. According to the survey, 82% of renters are long term renters, and 57% are long term renters who have lived for a long time in the same home. Just 14% said they aren't staying long enough in the same place to buy. Zillow's survey sheds light on why some renters are not buying homes, despite historically low interest rates, prices that remain below peak levels in many areas and rising rents, however, some 20% of renters said they simply prefer to rent. ‘If the buy versus rent decision were about simple maths, we'd likely have millions more home buyers in the market, because the equation is tilted heavily in favour of buying,’ said Zillow chief economist Stan Humphries. ‘But no matter what the numbers say, buying a home is a huge commitment. Every day, Americans make decisions to buy or rent based on any number of personal dynamics, including preference, flexibility needs, family factors and, yes, financial considerations,’ he explained. ‘There is no right or wrong choice, and it's important that America's housing market maintains a number of affordable options for renters and buyers, no matter their preferences,’ he added. The report points out that over the last year, as home price appreciation has slowed down, the length of time it takes to break even on a home purchase grew slightly in most major metros. The breakeven analysis looks at how long it takes to come out ahead on a home purchase versus renting the same home, recouping the costs of buying, including taxes and maintenance. Among the top 35 metro areas, Dallas-Fort Worth had the lowest breakeven horizon, at 1.2 years. Indianapolis and Detroit were next at 1.3 years. The highest breakeven horizons were in Los Angeles, at 5.1 years, Washington D.C. at 4.2 and San Diego at 3.8 years. The national average is 1.9 years. Zillow's breakeven horizon incorporates all costs associated with buying and renting, including upfront payments, closing costs, anticipated monthly rent and mortgage payments, insurance, taxes, utilities, maintenance, and renovation costs. The horizon also factors in home equity growth for buyers, and, for… Continue reading
UK Lib Dems set out plans for a Help to Rent scheme for young people
The Liberal Democrats, one of the main political parties in the UK, have announced plans for a new Help to Rent scheme to support young workers move out of their family home and into a rented property. The party, which was part of the coalition government, said it would introduce the scheme if it is again part of the new government after the general election next month. It pointed out that research shows that around two million young working adults still live with their parents despite being in paid work because they can’t afford to get a home of their own. Rising rental costs mean that many young workers can't afford the money needed for a tenancy deposit of the one to two month's rent expected up front unless they have financial help from their parents or friends. Under the Help to Rent scheme, young working people in England would be able to borrow up to £1,500 or £2,000 in London from the government to go towards their tenancy deposit. To be eligible, tenants would need to be between 18 and 30 years old, in paid employment and not be home owners or seeking social housing tenancy. Loans could be paid over one or two years and once paid off, could be used for future rental properties. The knock-on effect of having young working adults in the family can also lead to parents having to upsize or delay the downsizing of family homes to accommodate older children, thereby reducing the availability of family homes. ‘Increasingly we see young people stuck in the family home as they can't afford the upfront costs of a deposit to rent a property despite having a paid job. It's simply unfair that thousands of hard working young people still have to live in the same bedroom they lived in when children,’ said Deputy Prime Minister and Leader of the Liberal Democrats Nick Clegg. ‘When you get your own job, you want to stand on your own two feet, have your own space, and not have to rely on the bank of mum and dad. Our Help to Rent scheme removes this barrier to young people's independence, providing access to up to £2,000 towards their tenancy deposit so they can fly the nest and rent their own space,’ he added. Ian Fletcher, director of policy of the British Property Federation, pointed out that young renters often do not have a credit history and therefore struggle to raise a deposit. ‘This welcome policy will help more people into their first homes and stop them having to raise funds through pay-day lenders and other risky means,’ he said. ‘This announcement builds on the excellent work of the Confederation of British Industry and housing charity Shelter, who have encouraged employers to voluntarily offer loans for tenancy deposits, much like loans already offered for travel season tickets,’ he explained. ‘Schemes such as these are also made possible by the vast majority of legitimate landlords and agents, who… Continue reading
