There’s been a lot of talk in the papers about booming buy-to-let rents of late. HomeLet was the latest to talk about soaring tenant costs this week, and it might not be the last.
But I’d urge anyone to think carefully before investing in buy-to-let as booming costs tend to offset the benefit of rising revenues for many landlords. There’s a reason why UK Finance data shows the number of mortgage approvals for buy-to-let purchase dropped 4.5% in November: investors continued to give the rentals market the cold shoulder.
A better property play
Those seeking a slice of the UK property market would be much better off buying one of the housebuilders. And this is advice that I myself have been happy to act upon, Barratt Developments (LSE: BDEV) being one of my longest-held share investments.
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Recent robust trading releases from the FTSE 100 firm’s rivals have underlined the strength of the housing market today. Things could get even better should the Bank of England cut interest rates, as many are now expecting.
Royal Institution of Chartered Surveyors (RICS) data today suggests that the market is already improving. According to the body, “the UK housing market has seen a lift in sentiment” since last month’s general election. And some 31% of respondents to RICS’s survey expect transactions to rise over the next three months.
City analysts expect earnings at Barratt to dip 1% in the current fiscal year (to June 2020). But in the wake of recent data, I reckon estimates could be significantly upgraded. In my opinion, the housebuilder’s forward P/E ratio of 10.8 times and corresponding 6% dividend yield make it a very attractive share to load up on today.
Motoring on
I think individuals seeking big dividends on a budget should pay Hastings Group (LSE: HSTG) close attention too. The car insurance giant may be facing the double whammy of rising claims costs and intense competition, though I’m confident that the outlook remains quite rosy for the FTSE 250 firm.
Motor premiums are on the gallop again, after all. Data from Consumer Intelligence shows that average costs have gained 2.2% over the past 12 months, continuing the steady recent upswing in insurer prices.
But rising premiums aren’t the only reason to be encouraged by Hastings’ investment case. I also like the rate at which it is pulling customers away from its competitors. Its share of the private motor market rose 30 basis points year-on-year to stand at 7.8% in September. And as a consequence, the number of live policies on its books jumped 5% to number 2.84m.
No wonder City brokers expect profits at Hastings to rip higher. Current estimates suggest a 22% bottom-line rise in 2020, resulting in a dirt-cheap P/E ratio of 11.4 times. And this leads to predictions of more dividend growth and a 6.9% yield as well.
