The Model Works founder Brian Hall said data provided by the Association of Residential Lettings Agents showing stable buy-to-let profits was ‘incomplete, inaccurate and biased’.
His own model, based on house price indexes and several costs not included by ARLA, instead showed profits fluctuate, with a geared investor enjoying over 400% profit over five years in 2004-5 before declining to nearly -100% in 2012. Profits for cash buyers followed a similar pattern, falling to close to zero over the past two years.
Hall said: “If you read the numbers you can see geared investors are making a loss and cash buyers are making no profit at all.
“It is crucial someone making such an important decision is properly informed.”
Hall’s model uses the Halifax property price indices and Bank of England mortgage rate data, rather than the 20-year moving average price rise and Bank Rate + 2% preferred by ARLA. Stamp Duty, arrangement fees, arrears and management costs are also factored in.
In addition, while the ARLA model projects possible future returns in five years on a purchase today, Hall’s index looks back five years in order to calculate what the actual returns would be on a property sold today.
In a statement, ARLA said: “The ARLA Review and Index is based on surveys conducted among ARLA members and investor landlords. It is independently written and includes clear details on the methodology used.
“The index model used has provision for altering assumptions for different scenarios and is one of a number of reports across the property industry.”