Buy-to-let isn’t the lucrative investment route it once was, but shocking new data from UK Finance has revealed just how challenging the business of residential lettings has become.
According to the body, there were a whopping 800 buy-to-let properties repossessed during the third quarter versus 570 a year earlier, a change which translates through to a 40% drop.
It’s true that this year-on-year jump was caused in part by a backlog of older cases being administered according to most recent regulatory requirements. However, it is clear that a number of landlords are finding themselves under an increasing amount of financial pressure and this is likely to have fed into that third-quarter hike. UK Finance says that some 4,500 buy-to-let mortgages were in arrears of 2.5% or more of the outstanding balance, up 5% on an annual basis.
Tough and getting tougher
Landlords have seen their returns and their rights take an almighty whack over the past few years, a result of government attempts to free up homes for first-time buyers by making conditions for buy-to-let investors more and more uncomfortable.
And if this general election has revealed anything it’s that things look set to get even tougher. The Conservatives have doubled down on their plans to scrap ‘no-fault’ evictions, making it harder for landlords to evict their tenants, while the implementation of rent caps forms a significant part of Labour’s plans for buy-to-let.
Quite why anyone would take a gamble with this increasingly-difficult investment segment is beyond me. If I had several thousand pounds sitting in a bank account waiting to be invested, I’d rather use that money to buy property-based stocks, ones which require much less maintenance. Indeed, if I had a spare £5,000 rattling around, I’d much rather use it to buy shares in Warehouse REIT (LSE: WHR).
A better property play
So what make this AIM-quoted share such a brilliant buy today? One word — e-commerce. Those companies owning and operating warehouses and so-called big box logistics spaces are hot property (pun fully intended) right now as more and more shoppers stay at home and order online instead of hitting the high street. It’s a major reason why private equity firm Sun European Partners made a bold takeover approach for Clipper Logistics late last week.
Half-year results from Warehouse REIT earlier this month showed just how business at such firms is flying right now. Revenues soared 27% in the six months to September to £13m, thanks in part to recent acquisition activity, while the value of its portfolio improved 0.6% on a like-for-like basis from March levels, to £438.7m.
And the business remains busy on the M&A trail to ride this increasingly-fertile environment. Thus City analysts expect it to follow a 1% profits rise in this financial year (to March 2020) with a 12% increase in fiscal 2021. Meanwhile, the firm’s pledge to pay another 6p per share dividend this year looks in great shape and is a figure which yields a monster 5.6% too. Great growth and big income? I’d happily buy shares in this AIM-quoted stock today.