If you’re a buy-to-let investor, or someone thinking of taking the plunge in this particular arena of property investment, I’ve got some good news for you… fresh lending data just released shows that mortgage costs continue to steadily fall.
Property Master’s monthly Mortgage Tracker report tracks lending rates across the country’s 18 biggest buy-to-let lenders, and its latest report for August shows that, barring one or two exceptions, buy-to-let rates fell across the board last month. It was led by the five-year fixed rate product covering 50% of the property value. The average cost here fell £13 per month between July and August, Property Master notes.
5% vs 10%
I won’t be offended if the news hasn’t prompt you to reach for a chair or grab the smelling salts, however. Every little helps, and especially at the moment where recent regulatory changes and alterations to buy-to-let tax policy have put the boot into investor returns.
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But that’s kind of the point. So devastating have such changes had on landlord profits that recent cuts by mortgage lenders to boost returns just don’t cut it. It’ll take much more than that to encourage me to take the plunge with buy-to-let.
At the moment the average return a landlord can expect to make on their investments stands at around 5%. Not bad, sure, but a figure which pales in comparison with the average return of up to 10% which stock market investment can generate.
And it’s quite possible returns from renting out property will continue to fall as government steps up its attacks on landlords to help soothe the country’s homes shortage. It’s why almost half of current buy-to-let investors say they wouldn’t have jumped into the market had conditions have been tough as they are today.
A better place for your money
If you’re determined to play the property market, I believe that Empiric Student Property (LSE: ESP) is a much better way to do it.
I’ve been tipping the student accommodation as a top ‘buy’ before the release of half-year financials late last month. So you can imagine my reaction when those red-hot trading numbers came in, details which shoved the share price to their highest since March.
In short, revenues blasted 14% higher in the six months to June, thanks to a broad confluence of factors: rents are swelling; occupancy is climbing; new developments are delivering; and recent acquisitions are paying off.
But this wasn’t the only reason to celebrate. Empiric’s also making great progress with gross margins and these rose 10%, reflecting moves to bring down property costs and the impact of those improving occupancy levels. And this, allied with those booming revenues, drove profit before tax 33% higher year on year.
Now Empiric’s expected to keep the full-year dividend on hold at 5p per share in 2019. But bear in mind this still yields an enormous 5.3%. And next year, City analyst expect the payout to swell to 5.1p, underpinned by predictions of more electrifying profit growth and meaning an even-better 5.4% yield.
So forget buy-to-let, I say. This investment’s in much better shape to deliver blowout returns now, and in the years ahead.
