Having seen property prices rise for decades, many people may feel that having a buy-to-let is a worthwhile move at present. After all, there’s been a housing shortage for many years in the UK, and successive governments don’t appear to have been able to solve it. As such, it could be argued that there’s still potential to make high returns in the long run.
The reality, though, is that house prices are at their highest ever level compared to average incomes. With the UK economy facing an uncertain period, which could include rising interest rates, buy-to-let may not prove to be as profitable in future as it has been in the past. As such, accessing global gains through FTSE 100 growth shares may prove to be a better idea.
Challenging prospects
Although there continues to be a shortage of housing, its affordability is coming into question. Last year, house prices reached their highest level compared to average earnings. This suggests that prices are unlikely to continue to rise significantly, as wage growth may keep them held back.
Of course, a mixture of government policy and low interest rates has meant that individuals have been able to buy their first home despite prices being so high. Policies such as Help to Buy are unlikely to run in perpetuity, while interest rates will eventually rise to more normal levels. When they do, house prices may need to fall in order for them to be affordable, given that individuals will no longer be able to take on such large debts. Even a modest rise in interest rates could squeeze first-time buyers at a time when wage growth remains relatively low.
Growth potential
In contrast, investing in FTSE 100 growth shares could prove to be a sound move. There are a number of stocks within the index which have exposure to fast-growing regions of the world, and they may be able to offer high returns over the long run.
Although investing in emerging markets is not a new idea, countries such as China and India nevertheless offer exceptionally high growth rates. With their consumers gradually seeing wages rising, there could be significant growth opportunities for a range of FTSE 100 companies in future. Likewise, the US economy is growing at a fast pace, and this could cause global share prices to remain buoyant in future.
In terms of value, the FTSE 100 appears to offer relative appeal when compared to a buy-to-let. The index yields around 4.5%, which is relatively high compared to its historic range. This suggests although there may be some volatility ahead in the remainder of the year, its performance in the long run could be highly appealing. As such, now may be the right time to buy FTSE 100 stocks, rather than consider a buy-to-let.