We writers at The Motley Fool devote a heck of a lot of time on buy-to-let and, more specifically, warning readers of how investing in the rentals market is becoming increasingly problematic and more and more expensive too.
So it comes as a refreshing change to report on some good news on the rentals market. I’m pleased to say the latest report from Hamptons International gives me the opportunity to do just that. So strap in and put your happy face on.
Rents rising across the UK According to the estate agency’s latest Monthly Lettings Index, the cost of a new let in the UK grew 2.1% on average in April, the fastest rate of expansion since January 2018.
This healthy rise was down primarily to strong rental growth in London, Hamptons said, with new properties on the outskirts of the capital reporting the biggest year-on-year rises (up 4.4%). But there was plenty to celebrate all round as rents rose in every major British region last month.
Cost growth overshadows rent rises It’s not a great shock to see costs gaining momentum in recent weeks as the exodus of landlords exacerbates the existing supply shortage in the market and drives up monthly rental packets. With recent data showing more and more proprietors are thinking of selling their buy-to-let properties too, I would expect to see these prices continue to head northwards.
That, however, is not to say that I will get involved in this investment segment any time soon. Sure, rental growth may be at 15-month peaks, but the rate at which rents are rising is still offset by the increasing financial impact of reduced tax relief, rising costs of stamp duty and capital gains tax, extra expenditure for regulatory changes like an extension of HMO rules for smaller properties, and so forth.
And things are only likely to get worse as successive governments try to address the housing supply crunch by driving landlords out of the market. So why get involved here when you can make vast returns from the stock market?
These Footsie firecrackers are better bets A quick glance at the FTSE 100 shows just how much more lucrative investment in equities can be right now:
- Barratt Developments (LON:BDEV), Taylor Wimpey (LON:TW) and Persimmon (LON:PSN) are much better ways to play the property market, in my opinion. That aforementioned homes shortage continues to drive profits higher at these businesses, allowing them to keep paying eye-watering dividends too. As a result, these particular Footsie firms offer forward yields of between 7.5% and 11.2% at current prices.
- Or how about GlaxoSmithKline or AstraZeneca, pharmaceutical producers which offer inflation-beating dividend yields of 3.7% and 5.3% respectively, and whose investors can look forward to increasingly-large payouts because of their rejuvenated product pipelines?
- DS Smith is a share I own because of its big dividend yields (currently 5.3%), but fellow packaging manufacturers Mondi (LON:MNDI) and Smurfit Kappa are great blue-chip stocks with long histories of unbroken earnings growth behind them too. Incidentally, these shares also yield a handsome 4.2% and 4.1% respectively for the current fiscal year.
Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended AstraZeneca and DS Smith. 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.
Motley Fool UK 2019