Simple savings better than Buy to Let now?

rjgb

Hello all,

Am I correct in thinking that, in the current economic climate, it would be better to put a lump sum of £125k into a high-rate savings account (e.g. Bradford/Bingley 7% Bond = 5.6% after tax) than investing it into a Buy to Let property (without any mortgage)?

If my calcs are correct, to equal the interest achievable through savings, a But to Let would have to bring in (£125k * 0.056 £7000 per annum, which amounts to £585pcm, after tax, letting agent fees, maintenance, ground rent, service charges (if applicable), etc, etc. For anywhere you can buy a flat outright for £125k, you are unlikely to make such a profit each month. Also, a Buy to Let requires some work, whereas leaving money in a savings account doesn't.

An old argument would have been that there was capital growth too, to offset this. But now house prices are, at best, stagnating, this is no longer the case.

Moreover, it is looking as though the BoE is going to have to raise interest rates (possibly by 0.75% over the rest of 2008) to control inflation. So the potential "profit" to be gained by simply saving is greater still.

Am I missing something, or does this make sense?

If it is correct, why aren't landlords selling off their properties asap? Perhaps it's becuase they're in negative equity and hope that the market will recover and give them capital growth again?

rjgb

prudentsaving42

Ofcourse it's silly to buy-to-let now because you will lose capital, meaning the value of your property will most likely fall during the next few years, which will wipe out your rent earnings.

rjgb

But even assuming that house prices fall no further, do you agree that the fixed-rate bond is still better than a BTL?

Also, why are there not hundreds of landlords' flats and houses for sale as they try to cut their losses?

tomstickland

Buy to let isn't really investment, it's speculation.

oldfella

my understanding is that the benefit of BTL is in house price inflation - you make a loss on the rent, and retrieve it plus when you sell.

no prospects of capital growth = big problem

prudentsaving42

rjgb wrote: »

But even assuming that house prices fall no further, do you agree that the fixed-rate bond is still better than a BTL?

Also, why are there not hundreds of landlords' flats and houses for sale as they try to cut their losses?

Yes, a fixed-rate bond is currently higher-yielding than BTL for most properties. I'm not sure about higher-rate tax-payers.

dunstonh

Am I correct in thinking that, in the current economic climate, it would be better to put a lump sum of £125k into a high-rate savings account (e.g. Bradford/Bingley 7% Bond = 5.6% after tax) than investing it into a Buy to Let property (without any mortgage)?

Its been that way for the last 4 or 5 years. Especially on non mortgaged BTLs.