It said profitability remained steady around the 12% level during the last three quarters. A landlord investing over a five-year period using a repayment mortgage should expect a compound rate of interest rate of 11.87%.
Landlords using an interest-only mortgage will also receive a return of 11.66%, The Model Works said.
Looking at a longer investment period, landlords holding a property for 25 years should anticipate annual returns of 10.36% on a repayment mortgage and 9.83% on interest-only. This profit on a yearly basis would represent a return of 10 times the original investment.
“Our buy-to-let profitability index shows that five-year geared buy-to-let investors continue to see healthy profits,” says Brian Hall from The Model Works.
“After several tumultuous years we can begin to take stock and look at the key factors that will affect future profitability. This will require new profitability measures.”
Hall said it was important for investors to look past the term ‘yield’ when considering the property investment as these often fail to consider the original purchase price or any costs incurred when managing the property.
He described the current market as ‘overinflated’ and said capital gain had fallen away substantially since the mid-00s.
“Understanding these key profitability drivers is critical for any landlord considering expanding their portfolios, into an overinflated market, with uncertainty about interest rates and property prices” Hall added.