Falling yields, poor quality tenants and legislation ‘Armageddon’ due to begin next April, is it time for property investors to bail out of the buy-to-let market and look to other asset classes?
It is difficult to ignore the data surrounding the UK housing market. Average house prices in the UK increased by 0.7% in the year to July 2019, down from 1.4% in June 2019, according to the Office for National Statistics (ONS). This is the lowest annual rate since September 2012, when it was 0.4%. Over the past three years, there has been a general slowdown in UK house price growth, driven mainly by a slowdown in the south and east of England.
Political uncertainty surrounding Brexit, a possible General Election and stamp duty reform has caused the UK housing market to stop dead in its tracks.
But how about landlords in the UK? Are they still achieving attractive yields with their buy-to-let investments? Perhaps not.
“The buy-to-let market is still active, but investors now have to work harder for their money. It is not just a question of getting ‘money for nothing’.”
Despite huge investment in various London boroughs, like Camden, Hackney and Westminster by tech giants Google, Facebook, Amazon or Microsoft, rental yields in these areas come in below 4%, almost one per cent less than the London average of 4.43%, according to the latest research by lettings management platform, Howsy
Property expert Henry Pryor says: “The buy-to-let market is still active, but investors now have to work harder for their money. It is not just a question of getting ‘money for nothing’. If you are a buy-to-let landlord, it is worth trying to aim for a yield of 6% or more.
Pryor adds: “Investing in property is an illiquid asset and relying on capital appreciation is no longer a strategy. As a landlord also you are taking a certain amount of risk letting to tenants, and relying on them to pay the rent.”
So, if rental yields are slowing, is it worth investing in other asset classes free from estate agent fees, legal fees and general property maintenance?
The Association of Investment Companies (AIC) has recently published its list of “dividend heroes” – investment companies which have increased their dividends for 20 or more years consecutively.
There are 20 dividend hero investment companies and of these four have increased their dividends for more than 50 years in a row, using their ability to reserve up to 15% of their income to smooth dividend payments in good times and bad.
City of London, Bankers and Alliance lead the way having increased their dividends for 52 consecutive years. Following closely behind is Caledonia which has raised dividends for 51 years in a row.
Annabel Brodie-Smith, communications director of the AIC said: “Investment companies have unique benefits when it comes to delivering a dependable and growing dividend to investors. They can retain up to 15% of the income they receive each year, meaning they can squirrel away income in good years to boost dividends in leaner ones. This has enabled the 20 dividend heroes to achieve their enviable records of dividend growth, raising dividends for more than 20 years. With interest rates still low, the ability of investment companies to pay dependable and rising dividends is as important as ever.”