Buy-to-let returns blow ISAs out of the water

The latest market analysis by London lettings and estate agent, Benham and Reeves, has revealed that despite the government’s best attempts to dampen Buy-to-Let profitability, you’re far better off investing in bricks and mortar compared to chasing dreams of becoming an ISA millionaire.

Benham and Reeves analysed data over the last 10 years looking at the average annual return when investing in a stocks and shares ISA, a Cash ISAs 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 shout 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 your original £20,000, although this climbs to £47,381 had you invested £20,000 on an annual basis.

A cash ISA, on the other hand, 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 you down almost £7,000.

Benham and Reeves then analysed the average annual net yield on a Buy-to-Let investment and the research shows 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 to 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.

Director of Benham and Reeves, Marc von Grundherr, commented:

“The story of the ISA millionaire is one that is heavily publicised and many have looked to these products as a way to build wealth. There’s no denying that some have been successful in doing so, however, those with an eye on the long term simply won’t see a substantial return based on their historic performance over the last 10 years.

There really is no safer investment than UK bricks and mortar and the Buy-to-Let sector has outperformed both stocks and shares and cash ISAs quite considerably over the last decade.

Of course, the government has done its best to dampen this return but even with changes to tax legislation and an increase in stamp duty costs, rental market investments continue to yield very strong returns.”