Buy-to-let investments have often been considered a one-way ticket to financial success. With property prices having soared in the last few decades, and rents in many parts of the country having done likewise, borrowing money to fund the purchase of one or more properties has been a worthwhile means of making a million for many people.
However, the outlook for the industry may be less appealing than it once was. After a period of sustained growth, the affordability of housing may be a concern for landlords. Alongside an uncertain economic outlook for the UK that may mean slower growth in rents, now may not be the best time to undertake buy-to-let investments.
Capital growth prospects
The last decade has seen historically-low interest rates make property more affordable for a variety of people. The end result has been house price growth, with a buoyant economy providing confidence to first-time buyers and people looking to move up the property ladder.
Now though, the unaffordability of housing could restrict its potential to deliver capital growth in the coming years. The house-price-to-average-earnings ratio is almost at a record high, while the prospect of rising interest rates may mean mortgage repayments increase over the medium term. This could make it more difficult for first-time buyers to get onto the property ladder, and may mean demand is reduced.
The impact of this on the capital growth prospects for landlords may be significant. The cyclicality of the property market could mean a period of slow growth, or even decline, is now ahead.
Income return potential
While rents have generally followed house prices higher in recent years, this trend may come to an end due to the economic uncertainty faced by the UK. Although employment levels are high and GDP growth has been robust in the last few years, the potential impact of Brexit remains a known unknown.
Certainly, Brexit may prove to be a good thing for the UK economy in the long run. However, it seems to have contributed to weaker consumer confidence in the last couple of years that could produce a more cautious standpoint among people who are considering buying a property.
Furthermore, with tax changes such as reduced scope to offset interest payments against rental income for landlords, the cash flow from buy-to-let investing may be less enticing than it once was.
Buying opportunity
While now may not be the right time to undertake buy-to-let investing, buying shares in a wide range of listed companies could be a shrewd move.
The FTSE 100 and FTSE 250 may have experienced volatile performances in 2019. But with a wide range of stocks offering wide margins of safety and both indexes appearing to be fairly priced even after a decade-long bull market, they could produce higher returns than a buy-to-let. They may also increase your chances of making a million.
