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Buy-to-let returns lag equities, Rathbones reports

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Residential property investment no longer delivers the returns that characterised previous decades, according to a report from investment management firm Rathbones.

The wealth manager’s latest analysis, titled Don’t Bet the House, concludes that buy-to-let’s appeal “appears greatly reduced” when compared with diversified portfolios of financial assets.

Changing economics since 2016

Rathbones identifies three key factors that have altered the economics of residential property investment since 2016: slower house price growth, increased borrowing costs, and a less favourable regulatory environment for landlords.

The average UK home value has risen 3.7% annually since 2016, roughly matching inflation. London properties have performed worse, increasing just 1.3% per year—2.2 percentage points below inflation over the period.

Meanwhile, typical two-year fixed rate buy-to-let mortgages requiring a 25% deposit now stand at slightly above 5%, more than double the rates available several years ago.

“For the landlords that have relied most heavily on mortgage financing, higher interest rates may even render their business model unviable,” the report states.

Portfolio comparison

According to Rathbones’ analysis, a diversified portfolio consisting of 25% UK equities and 75% international equities has outperformed property, rising 3.4 percentage points annually above inflation since 2016.

The firm also points to regulatory pressures affecting landlord profitability. Higher stamp duty rates on additional properties, the reduction and subsequent removal of mortgage interest tax relief for landlords, and increasing regulation have all contributed to tighter margins.

These findings come as property market activity shows signs of slowing, with broader questions emerging about the future of the private rental sector.

Market outlook

Rathbones states it sees “little prospect of a return to the conditions that drove strong property returns in previous decades,” concluding that “the golden age of investing in UK residential property is over.”

The report suggests investors seeking returns should consider diversified financial portfolios rather than concentrating capital in residential property assets. However, the analysis does not account for individual circumstances where property ownership may serve purposes beyond pure investment returns.



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