Why buy-to-let remains a strong investment option

It’s coming up to the end of the financial year and the beginning of a new one where a host of tax changes come into play, the main ones being around dividend payments and the well-publicised National Insurance rate rise.

Related topics:  Blogs,  Mortgages
Cat Armstrong | Dynamo for Intermediaries
3rd March 2022
Cat Armstrong Dynamo
"Those who have invested just £20,000 into bricks and mortar a decade ago would have seen this investment climb by £10,470 today."

When it comes to savings, this also marks the time when ISA allocations for the previous year expire and are reopened for any further tax-free savings made over the year ahead, up to the maximum allocation obviously.

Despite interest rates rising, saving rates remain low and whilst I am no expert when it comes to savings and investments, a recent article in Property Reporter with the headline 'Why BTL remains a better option than ISAs' certainly piqued my interest. Within this interesting piece, Benham and Reeves analysed data over the last 10 years to evaluate the average annual return when investing in a stocks and shares ISA, a cash ISA and the buy-to-let sector, as well as what this return would look like based on an example investment of £20,000.

The research shows that investing in a stocks and shares ISA hasn’t been a bad choice and over the last decade they’ve returned an average annual rate of growth at 2.3%. As a result, a £20,000 investment 10 years ago would have yielded a return of £25,156 in addition to the original £20,000, although this climbs to £47,381 had borrowers invested £20,000 on an annual basis.

On the other hand, a cash ISA hasn’t been such a strong investment and, in fact, the average annual rate of growth sits at -4.1%. Meaning a £20,000 investment 10 years ago would have seen borrowers down almost £7,000. This study also analysed the average annual net yield on a buy-to-let investment uncovering that, at an average annual return of 4.3%, it’s been by far the better option when compared to the two avenues of ISA investment. Those who have invested just £20,000 into bricks and mortar a decade ago would have seen this investment climb by £10,470 today. An ongoing annual investment of £20,000 per annum would see this return climb to £73,959.

Harking back to tax changes, we know that landlords have been hit in the pocket over the years by a swathe of changes to policy and legislation throughout the buy-to-let market. Inevitably, these have impacted bottom lines and have resulted in some landlords taking the decision to exit the market altogether. However, research like this really does help underline just how strong investment in bricks and mortar can be over the medium and longer-terms.

There remain a substantial number of factors for landlords to consider when starting, diversifying, streamlining or adding to a portfolio. A major one, especially from a tax efficiency perspective, is whether to incorporate into a limited company structure and this is an area where lenders have become far more accommodating both in terms of criteria and pricing in recent times. A trend which I expect to continue in 2022.

Being a landlord is not for everyone. Many people are happy to seek alternative forms of investment and there is certainly nothing wrong with that but as a landlord myself, I have maintained my love for property over the years, no matter how many obstacles have been thrown in my way. And, judging by the demand we are currently experiencing across the sector, it seems like many, many others continue to feel the same.

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