We all know how buy-to-let, once a fortress for those seeking big returns on the back of big rents and exploding property prices, has been coming under more and more pressure of late.
Landlords may have been happy to endure some of the headaches that come with the territory of property rentals, like rent delays, property damage and masses of paperwork, given the stunning returns of the past couple of decades. But with the government tightening the vice on proprietors’ wallets it’s time to ask whether buy-to-let is now worth the aggravation.
Buy-to-let arrears are rising
Indeed, for many landlords the mix of reduced tax relief and bigger-than-expected regulation-related costs are really starting to take their toll, a fact that’s perfectly illustrated by recent mortgage arrears figures from UK Finance.
According to the banking and finance body, some 4,620 buy-to-let mortgages were in arrears of 2.5% or more of the outstanding balance in the first three months of 2019, suggestive of the rising stress on landlords’ bank accounts. This was 3% higher than the number during the corresponding period last year.
More worryingly was news that some 1,200 of these mortgages were in ‘significant’ arrears (of 10% or above of the total outstanding balance) during quarter one, representing a 12% year-on-year rise.
Although UK Finance pointed out “these do not indicate a clear increasing trend at this stage” and “increases are small and from a low base,” they still cause alarm bells to ring in my mind. And I’m sure I’m not alone.
A better way to use your money
The latest data feeds into the idea that buy-to-let is becoming a more hostile environment for investors. It’s not for nothing that a number of recent surveys have come out showing a growing number of landlords stampeding towards the exits too.
So what’s a superior way to make your money work for you? I would argue — like the rest of my colleagues here at the Motley Fool — that stock investing is a better way to make big returns right now. And particularly as recent changes to ISA rules mean that you can park as much as £20,000 in one of these investment vehicles per year without being hit by the taxman.
There’s plenty of tension in the stock markets right now following the latest war of words between the Trump administration in Washington and their counterparts in China on the trade front. The truce is over — at least for the time being — and thus the earnings outlook across equity bourses has become a little more muddy.
For the time being though, it appears as if there’s still plenty of reason to expect dividends to reach fresh record highs in 2019. The FTSE 100 still boasts a colossal average forward yield of 4.5% right now, and while profits growth is anticipated to slow in 2019 for many companies, largely speaking Britain’s blue-chips are still in great shape to grow earnings and thus dividends too.
In fact, I’d take the recent stock market pullback as a great opportunity to pick up a bargain or two. There’s certainly no shortage of great income shares to load up on today.
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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.