Regular readers of The Motley Fool will know that we writers are not exactly cock-a-hoop over the buy-to-let sector.
A litany of issues, from painful tax changes to slowing (or even reversing) home price growth, from rising interest rates to inconvenient and even costly regulatory changes governing tenancies, mean that this type of property investment is now a minefield.
Having said that, some would argue that the financial market volatility of the past month shows how buying bricks and mortar is a much safer and more stable investment destination than stock investing, the sharp sell-off dragging both good and bad stocks through the floor.
And there’s room for plenty more pain to come down the road. The seeds of last month’s market panic, i.e. concerns over interest rate rises in the US choking off global growth allied with fears over the implications of President Trump’s trade wars with China, haven’t gone away. And other problems like the short- and long-term implications of Britain’s Brexit saga; the emergence of Cold War 2.0; and fiscal battles between Italy and EU lawmakers, add extra layers of fragility to the current trading climate.
Mortgage choices are rising… but so are costs
For risk-averse investors, now would appear to be a great time to get into buy-to-let investment, and particularly as the range of mortgage products available to landlords continues to grow, more than doubling over the past year, in fact.
And there’s been a slew of new products brought out in the past few days alone. Among the big movers, Atom Bank entered the rentals arena at the start of the week with the introduction of two- and five-year tracker mortgages, and Paragon Bank expanded its suite of products to include a specialised product for expat landlords and UK holiday lets. These moves followed digital lender Molo Finance entering the buy-to-let sector in late October.
Increased competition in the market should mean good news for consumers, of course. But investors need to be aware that right now mortgage costs are rising. A report from broker Property Master this week showed that the monthly cost of a two-year fixed rate £150,000 buy-to-let mortgage rose between £2 and £5 due to recent Bank of England interest rate rises, and between £4 and £5 for a five-year fixed rate product.
Sure, these additional costs are not exactly astronomical. But as Property Master pointed out, further rate rises from Threadneedle Street may be just around the corner, a scenario that would likely push mortgage costs still higher.
Stick with stocks
All things considered, I’m yet to be convinced that buy-to-let is a smart way to use your cash today. Irrespective of last month’s stock market sell-offs, investing in shares remains a vastly superior way of generating strong shareholder returns over a long time horizon, something that has been proven time and time again.
Sure, buy-to-let was a wise way to make your money work in years gone by as Britain’s homes shortages pushed property prices and rents through the roof. But the raft of increasing costs and ratcheted-up regulations make it quite a problematic investment arena, and one that is likely to get trickier. I for one will continue to shun the temptation of buy-to-let.
