Being a buy-to-let investor is becoming increasingly challenging. There are a number of areas which are moving against landlords, including tax changes, economic uncertainty, and monetary policy. As such, the returns available from property investing could fall, while investor worries could increase.
In contrast, investing in the stock market seems to be becoming increasingly attractive. Tax advantages remain high, share prices appear to offer wide margins of safety, and income returns are expected to be buoyant in the coming years.
Property worries
With around 9% of tenants in arrears, life as a landlord could prove to be highly challenging in future. Brexit is now only weeks away and could cause disruption for the wider economy. While this isn’t guaranteed and Brexit may have a positive long-term impact on the UK economy, consumer confidence is currently at a low ebb. This may make it more challenging for tenants to pay their rent each month, while the opportunity to raise rents may become less likely.
Alongside this, interest rates are expected to move higher over the next few years. This is likely to squeeze landlords’ cash flow – especially since a number of buy-to-let investors entered into interest-only mortgages in the last couple of decades. A higher interest rate may reduce the returns available at a time when capital growth appears to be distinctly lacking across the UK housing market.
Tax changes could also cause worries for landlords. There is political consensus building towards helping first-time buyers to get onto the property ladder. One way of achieving this goal is to make property investing less attractive from a tax perspective, with stamp duty changes and other tax updates likely to hurt an investor’s overall return.
Stock market
While investing in the stock market may be more volatile than property, it comes with far less effort and, potentially, reduced risks. Buying and selling can be undertaken from the comfort of an investor’s own home, and completed online within seconds. There’s the potential to diversify between a large number of stocks, so the chances of dividends being paid each year increases. In contrast, many buy-to-let investors have a highly concentrated portfolio made up of a small number of houses in the same area.
Buying shares can be undertaken through a variety of products, such as a Lifetime ISA, SIPP, or a Stocks and Shares ISA. All of these offer either bonuses or tax advantages to investors which could lead to shares offering a higher net return than property. And with the government not appearing to be waging a war on stock market investors, unfavourable tax changes such as those levied on property investors don’t seem likely over the next few years.
As such, property investing appears to be relatively unappealing at the present time. In contrast, shares could offer higher post-tax returns, as well as less worry for an investor.