Taking on a mortgage to buy and let property is a big step and not to be undertaken lightly. To me, shares and share-backed investments offer more flexibility and easier access. Here are four reasons why I wouldn’t touch buy-to-let property right now, and the first one is the big one.
Affordability
Just last week, mortgage lender Halifax released a report based on its own figures saying house prices rose at the slowest rate in September for more than six years. Prices were up just 1.1% year-on-year, according to the firm’s data. There was also a recent survey from the Nationwide building society which arrived at similar conclusions about the housing market in the UK.
The Brexit ‘process’ has been dragging on confidence in the property market and the outlook is uncertain. It looks like the macro-economy is softening globally, and we could be in for a period of recession.
Meanwhile, property prices have been driven to levels that make housing far less affordable compared to the average wage. Extraordinarily low interest rates and the government’s Help-to-Buy schemes have no doubt helped to keep property prices rising.
Now prices are flat and perhaps they’re being propped up by above-inflation wage growth. But it won’t take much to upset the fine balance in the property market, and I reckon there are several ways the market could become more affordable again. For example, maybe we’ll see a recession and an end to growing wages. Or we could see interest rates rise because of a period of economic prosperity.
Both scenarios could make it harder for people to afford property at current prices and therefore prices could start to fall. If that happens, you don’t want to be on the wrong side of a falling property market having just mortgaged yourself to the hilt to buy and let a property.
Illiquidity
It costs a fair amount of money to buy property in the first place. Think of mortgage arrangement fees, solicitors’ fees, and stamp duty. Then, when you want to sell the property, you’ll face costs again. But on top of that, buying and selling property can take a long time and, as such, the property market is illiquid.
That contrasts with buying and selling shares and share-backed investments, which can be undertaken with just a few clicks of your computer mouse, and with much lower costs.
Maintenance and management
But as well as buying and selling costs, there’ll be ongoing costs when you own buy-to-let property. Maintenance and management issues will likely keep on coming, such as refurbishment, repairs, insurance, and demands regarding tenants. The chances are high that you’ll need to keep dipping into your pocket and investing your time into your property for rent.
I reckon the ongoing costs and management time required to invest in shares are much lower than for buy-to-let property, yet the stock market is capable of delivering decent investment returns. So, for me, it’s shares all the way, and I wouldn’t touch buy-to-let property right now.