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Has the death of buy-to-let been greatly exaggerated?

Royston Wild
A house being constructed in the countryside

We don’t like buy-to-let here at The Motley Fool. And evidence shows that with returns for many diminishing to a shadow of their previous value, the general trend is for a growing number of people to share our pessimism and avoid the property rental sector.

The traffic isn’t all one way, though. There are still people out there who believe in the long-term investment appeal of buy-to-let. And recent data from UK Finance showed that buyer activity here has actually picked up more recently.

In December there were 5,700 mortgage approvals signed off for buy-to-let purchase. This was up 3.6% on an annual basis, the body noted.

Market moves

The wider house-buying sector is warming up too. In fact, UK Finance said that mortgage approvals rose for first-time buyers along with home-movers. The entire property market has perked up following the Conservatives’ general election victory of December. And latest research from Rightmove also underlined the confidence running through the market.

The online property listings play said that “demand is being driven by a more stable political landscape, with the number of new sellers coming to market failing to keep pace with the surge in activity from buyers.”

Rightmove said this improved interest is driving the number of agreed sales through the roof, up 12.3%.

The average asking price in the UK now stands at £309,399, up almost £2,600 from January. It is also just £40 off its record highs. Given the current strength of the market Rightmove predicted that “there is likely to be a series of new price records in the coming months.”

I’d rather have this 8% dividend yield

I for one believe that the British property market should remain extremely robust. It’s why I own shares in Barratt Developments and Taylor Wimpey. Even if the recent ‘Boris Bounce’ doesn’t last, a combination of mediocre housebuilding activity and extremely-favourable lending conditions for buyers means that demand for their new-builds should continue ripping higher.

I’d certainly rather put my money to work with these FTSE 100 property stocks than use that cash to invest in buy-to-let. Accelerating property prices might be good for existing landlords, but it’s not helpful today for those looking to either get on the ladder or to bulk up their portfolios.

And as I’ve said in those pieces I mention above, colossal upfront costs aren’t the only thing that buy-to-let investors need to worry about as the costs of renting out residential property are becoming increasingly expensive and problematic.

I’m far happier to hold Taylor Wimpey and Barratt and enjoy their abundant income flows. Yields for these blue-chips sit at a monster 8% and 5.5% right now. Indeed, given their relative cheapness — both change hands on P/E ratios below 12 times — I think that they are very attractive blue-chips.

Buy-to-let might not be dead. But there are various better ways to play the UK property market through share investing. If you’re hunting for yield though, these Footsie stocks are hard to beat. 

The post Has the death of buy-to-let been greatly exaggerated? appeared first on The Motley Fool UK.

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Royston Wild owns shares of Barratt Developments and Taylor Wimpey. The Motley Fool UK has no position in any of the shares mentioned. 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 2020