3 reasons why I wouldn’t bother with buy-to-let in 2019

Buy-to-let could become increasingly unappealing and here’s why.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The outlook for the buy-to-let industry continues to be relatively challenging. Not only are mortgages becoming more difficult to obtain due to increasingly stringent affordability tests, the prospects of rising rents may be somewhat limited due to the UK’s uncertain economic outlook. And with the affordability of housing continuing to be relatively low, the prospects for buy-to-let investors could be downbeat.

Rental growth

In previous years, rental growth has helped to boost cash flow for buy-to-let investors. Since there has been a shortage of homes available given the level of demand, rents have generally moved upwards. As such, even low initial yields have not put off too many investors, since the general assumption has been that income returns will rise at a brisk pace over time.

Now though, the UK economy faces an uncertain outlook. The Brexit process may cause disruption in the near term, and consumers could become increasingly concerned about their own financial prospects. And with it being an unprecedented event, a level of caution may remain in place even once a deal or no deal has been decided upon.

Passive income stocks: our picks

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

Clearly, Brexit could prove to be a good thing for the UK economy. It may catalyse GDP growth and create renewed optimism in the UK’s financial future. However, there is also a risk that it will do the opposite. This could lead to reduced confidence, which may end up translating into a slower pace of rental growth across the buy-to-let industry.

Mortgage availability

While obtaining a mortgage for a buy-to-let property was once relatively straightforward, new rules mean that there are more stringent requirements in place. Prospective landlords must be able to show that the rental income they receive will cover mortgage interest payments even if interest rates rise rapidly in future years. This could make some areas unviable when it comes to obtaining finance for a buy-to-let investment. And with interest rates due to rise over the next few years, the tests on new buy-to-let mortgages may become increasingly robust.

Prices

While house price growth is now viewed as ‘the norm’, the reality is that in previous eras there were periods of severe house price declines. Given the forecast for a rising interest rate and the uncertainty created by Brexit, it would not be surprising for house prices to experience a period of slower growth, or even a fall. And since there may be lower levels of immigration following Brexit, demand for housing may not grow as quickly as had previously been anticipated. As such, the demand/supply imbalance may gradually become less stark.

Since the house-price-to-earnings ratio reached its highest ever level earlier this year of 7.7, affordability remains an issue for many first-time buyers. This could mean that prices naturally fall relative to wages, which could further reduce the appeal of investing in property. And with the stock market having already fallen heavily in recent months, now could be the right time to move out of buy-to-let and into shares.

But this isn’t the only opportunity that’s caught my attention this week. Here are:

5 Shares for the Future of Energy

Investors who don’t own energy shares need to see this now.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.

While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.

Open this new report5 Shares for the Future of Energy — and discover:

  • Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
  • How to potentially get paid by the weather
  • Electric Vehicles’ secret backdoor opportunity
  • One dead simple stock for the new nuclear boom

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Investing Articles

Investing Articles

If an investor put £10k into Greggs shares one month ago, here’s what they’d have today

Greggs shares have had a tough year but Harvey Jones says they're notably cheaper as a result, while the dividend…

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

The Phoenix share price jumps 7.5% on today’s results, but still yields a stunning 9.4%!

Harvey Jones put his faith in the Phoenix share price and this morning was rewarded with a 7.5% jump on…

Read more »

Investing Articles

What’s been going on with the Barclays share price?

The rising Barclays share price reflects confidence in management’s strategy to improve business performance and enhance shareholder returns.

Read more »

Investing Articles

Prediction: in 1 year, the IAG share price could reach as high as…

The IAG share price has almost doubled in the last 12 months, but can this momentum continue in 2025? Zaven…

Read more »

Investing Articles

Prediction: in 12 months, here’s where the Glencore share price could be…

The performance of Glencore’s share price has been lacklustre, to say the least. But could all that change over the…

Read more »

Investing Articles

See how much an investor needs in their ISA to earn a £499 monthly second income

Harvey Jones crunches the numbers to show how it's possible to build a long-term second income by investing in a…

Read more »

Investing Articles

I’m considering buying more of this struggling FTSE 100 stock

This FTSE 100 stock hasn't exactly set our writer's portfolio on fire during the time he's owned it. But Paul…

Read more »

a couple embrace in front of their new home
Investing Articles

Prediction: in 1 year, the Taylor Wimpey share price could reach…

Can Britain’s reformed planning scheme send the Taylor Wimpey share price into overdrive? Here’s what the latest analyst forecasts predict.

Read more »