Buy-to-let has proven to be a popular place to invest in recent decades. Since the mid-1990s, it’s enjoyed a period of almost uninterrupted growth. Even the biggest financial crisis in a generation only caused a fall in house prices for a short time, having gone onto reach higher highs in the following years. And even though affordability issues have never been far away from the buy-to-let industry, government policies have helped to support capital growth for landlords in recent years.
Now, though, buy-to-let could faces an increasingly difficult future. It seems as though there are numerous risks facing the sector which could combine to cause it to underperform other major asset classes, such as the stock market. As such, shares could be a better place to invest in order to make a million over the long run.
A ‘perfect storm’ could be ahead for buy-to-let. From a political standpoint, there’s likely to be a significant amount of change over the next few years. Policies such as Help-to-Buy are unlikely to last in perpetuity. When they do come to an end, it may lead to reduced demand from first-time buyers, and this could impact negatively on the wider market. With there being the potential for a change of Prime Minister, or even government, due to Brexit, such schemes may come to an end much sooner than market participants are currently expecting.
Furthermore, there’s a gradual move towards making buy-to-let less appealing from a tax perspective. Changes, such as mortgage interest payments no longer being tax deductible, could be the start of a trend towards dissuading people from becoming landlords. After all, it’s likely to be a popular political move at a time when there are continued concerns about how difficult it is for first-time buyers to get onto the property ladder.
Additionally, an era of low interest rates looks set to come to an end over the next few years. A tighter monetary policy seems likely, and this could mean the profit on owning a buy-to-let investment is significantly reduced.
While buy-to-let seems to be losing its appeal, shares appear to be becoming increasingly attractive. The stock market has fallen by over 10% since its all-time high last year, and yet the macroeconomic outlook for the world economy remains positive. Certainly, there are risks ahead, such as the potential for a US-China trade war. But with forecasts for global growth being high, a number of FTSE 100 and FTSE 250 shares could generate improving returns.
With the government having increased the ISA allowance and made drawing a pension more flexible in recent years, it seems to be encouraging investment in shares. As such, now could be the right time to move from property to stocks, with the latter appearing to offer a better chance of making a million.
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