Forget buy to let and soaring rental demand! I’d buy the FTSE 100 for my ISA

Rental demand is exploding but Royston Wild doesn’t care. Here he explains why buying the FTSE 100 is a much better idea than investing in buy to let.

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 road to hell is paved with good intentions.”

Forgive the melodrama, but to this Fool, it’s a phrase that perfectly sums up recent government action on buy to let.

Attempts to help the country’s legions of young people get onto the property ladder may be a good thing but this has come at the expense of the landlord and tenant. Landlords’ costs have increased on a blend of bigger tax liabilities and greater regulation, adding to the financial pressure created by larger day-to-day running costs. And this has had the desired effect of encouraging would-be investors to put their cash elsewhere, and to force buy-to-let owners to throw in the towel and sell up.

At the same time, those aspiring first-time buyers still stuck in the rental trap are having to pay larger and larger rents as the scant supply of available properties gets even smaller. In fact, evidence suggests that rental demand is booming in the UK, data which may encourage many to still consider taking the plunge or persisting with buy to let.

Soaring demand

Recent data from lettings platform Bunk shows tenant demand across major UK cities exploded 6% between quarters two and three, led by Nottingham where rental demand leapt 18.7%. Blocking out the top three are Bristol and Cambridge, where demand leapt 17.5% and 16.4% respectively, overshadowing the 8.2% quarter-on-quarter rise that London landlords are witnessing.

Major UK cities ranked by quarterly demand change
City
Q2
Q3
Change
Nottingham
35.6%
54.3%
18.7%
Bristol
50.1%
67.6%
17.5%
Cambridge
33.5%
50.0%
16.4%
Bournemouth
30.3%
42.9%
12.6%
Portsmouth
31.6%
42.8%
11.2%
Glasgow
25.4%
35.1%
9.7%
Leeds
15.5%
24.1%
8.6%
London
21.4%
29.6%
8.2%
Manchester
26.4%
32.7%
6.3%
Birmingham
23.1%
28.9%
5.9%
Southampton
24.0%
29.6%
5.6%
Liverpool
18.3%
22.9%
4.6%
Leicester
24.7%
29.1%
4.4%
Newcastle
13.9%
16.5%
2.6%
Plymouth
34.5%
36.4%
1.9%
Swansea
16.3%
17.9%
1.6%
Sheffield
22.0%
23.5%
1.5%
Newport
38.7%
40.1%
1.5%
Aberdeen
8.0%
8.9%
0.9%
Edinburgh
14.3%
14.8%
0.5%
Oxford
29.0%
28.8%
-0.3%
Belfast
21.2%
20.9%
-0.3%
Cardiff
21.1%
19.7%
-1.3%

And naturally this booming demand is helping to drag rents higher as well. Freshest figures from landlord services provider HomeLet showed average rents in the UK soared to a record £970 per month in August, with costs rising in each and every part of the country.

Spiraling costs

So rents are rising but then, as I said, so are landlord costs. The $64,000 question then is whether or not the pros outweigh the cons and in my opinion the answer is an unqualified ‘NO!’

It’s still possible for buy-to-let owners to grind out a profit but so meagre are returns nowadays (currently around £2,000 a year according to recent studies) that you’d be much better off putting your money to work elsewhere. Besides, so intense is the desire by all the major political parties to curry favour with the non-property-owning class, that even those landlords still managing to walk the cliff edge are in danger of plunging off the side.

In my opinion you’d be much better off using your extra cash to build a brilliant Stocks and Shares ISA. As we all know, long-term share investors can expect to create bulging returns of up to 10%. And while the outlook for buy to let is getting cloudier and cloudier, the FTSE 100 is looking pretty attractive right now in my opinion.

The UK’s premier share index is marching steadily back toward 2019’s highs of around 7,687 points and is within range of taking out mid-2018’s record peak of 7,877. And there’s a multitude of reasons to expect investor demand for the Footsie to keep hotting up, like falling sterling, booming dividends, and reduced exposure to the Brexit-battered UK economy.

For these reasons I think buying a FTSE 100 tracker fund, an instrument that tracks broader movements in the blue-chip index, is a great idea for ISA investors today. And certainly a better bet than investing in buy to let.

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.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »