Every £1 invested in UK buy-to-let when the first dedicated mortgage launched 30 years ago would have generated £22.30 in total returns by 2026, according to analysis from Hamptons.
The estate agency says the 2,130% cumulative return from the average UK buy-to-let property since 1996 narrowly exceeds the £22.05 generated from £1 invested in the S&P 500 with dividends reinvested.
It is also almost three times the £8.96 total return calculated for the FTSE 100 and compares with £7.36 from gold.
Hamptons’ calculations combine capital growth with net rental income after running costs and are based on historical ONS house price and rental data.
RENT DRIVES RETURNS
Significantly, rental income rather than rising property values has generated the majority of landlords’ returns over the period.
Hamptons calculates that 62% of total buy-to-let returns over the past 30 years have come from rents paid by tenants, with capital appreciation accounting for the remaining 38%.
However, the relative performance has changed considerably more recently.
Over the past five years, Hamptons puts cumulative residential buy-to-let returns at 41%, compared with 75% from the S&P 500 and 73% from the FTSE 100.
That period has coincided with landlords facing higher borrowing costs alongside increased taxation and regulation.
LANDLORDS GET OLDER
The research also provides a striking picture of how both buy-to-let and the people investing in it have changed since 1996.
The average landlord buyer was 37 years old when the first buy-to-let mortgages appeared. Today that figure is 51.
The average property purchased has risen from £54,900 to £360,600 – an increase of 557% – although the typical percentage deposit has changed relatively little, falling from 29% to 27%.
Mortgage rates averaged 7.76% in 1996 compared with 4.52% today.
But how landlords finance their properties has changed dramatically.
Some 88% of buy-to-let borrowers used repayment mortgages in 1996, leaving just 12% using interest-only arrangements. Today 70% use interest-only borrowing and 30% repayment.
Fixed rates have moved in the opposite direction. Just 26% of landlords fixed their mortgage in 1996 compared with 99% today.
PROPERTY BOOM
Early buy-to-let investors also benefited from a period of exceptional house-price growth.
Average UK property prices doubled between 1996 and 2002, according to Hamptons, meaning the loan-to-value of an early investor who retained their property could have more than halved within six years.
That equity subsequently provided some landlords with the ability to expand their portfolios.
Hamptons says today’s higher property prices have created much greater capital barriers to entry, helping shift the sector towards older and more experienced investors.
A greater emphasis on interest-only borrowing also reflects landlords’ increased focus on monthly cash flow in a higher-cost environment.
GENERATIONAL SHIFT
Aneisha Beveridge (main picture), Head of Research at Hamptons, 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.
“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.”
