Whether you’re looking to jump onto the buy-to-let ladder for the first time, or to expand your existing property portfolio, pleasingly the range of mortgages you can pick for is stronger than it’s been for donkey’s years.
And most recent data from Moneyfacts illustrates the huge choice that homebuyers have today. According to the money comparison site’s latest UK Mortgage Trends Treasury Report, there are currently 2,396 rental products available, the largest number since the 3,305 products that consumers could pick from in October 2007.
What’s more, the range of products has shot up an astonishing 21% from the 1,929 on sale as of June last year, with a hefty 143 new products being rolled out over the past month alone.
Costs are rising
Unfortunately for buyers though, the surge in mortgage market competition hasn’t translated into reduced interest rates. The average rate on a two-year fixed rate product currently clocks in at 3.05%, up from 2.88% in June last year. Meanwhile the average five-year fixed deal has risen to 3.54%, from 3.43% a year ago.
Sure, for most investors these rises may not be enough to break the bank. And, as Moneyfacts notes, these interest rates are still markedly lower from those seen back in October of 2007, a period when the average interest rates on two-year and five-year products stood at 6.36% and 6.39%, respectively.
However, in the current climate of slashed tax relief, rising stamp duty, increasing maintenance costs and so forth, Britain’s landlords needs as much help as they can get. So while the mortgage rate rises of the past 12 months shouldn’t in isolation cause individuals to avoid buy-to-let, they do add to the bigger financial burden facing property owners compared with just a few years ago.
And for this reason I’m happy to give this investment class a very wide berth.
I’d buy these Footsie shares instead
Rather than get involved in buy-to-let then, I believe a better way to benefit from the battle among the mortgage lenders (for residential and buy-to-let purposes) is by buying into the housebuilders.
The backdrop of generous lending conditions, combined with the assistance provided by the government’s Help To Buy purchase scheme, is keeping the property market alive, despite the uncertain economic outlook caused by Brexit.
In fact, most recent data on home values suggests the market is picking up a head of steam, giving the profits prospects of the likes of Persimmon, Taylor Wimpey and Barratt Developments a shot in the arm.
I own shares in the latter two companies as I don’t want to be involved in the rising costs of buy-to-let ownership, not to mention the aggravation and mountains of paperwork that comes with the sector.
And I’d be happy to boost my holdings still further, thanks to their vast dividend yields — the three stocks mentioned boast forward figures of between 7.5% and 11% — and their brilliant value, as illustrated by their corresponding P/E multiples of below 10 times.
There’s plenty of ways for investors to make a fortune on the stock market nowadays, so why bother with buy-to-let? I say give the rentals segment short shrift and go shopping on the Footsie for some top income shares instead.
