Private housing rental prices increased by a relatively muted 1.5% in the 12 months to February, according to latest data from the Office of National Statistics (ONS). I reckon the next months will show even more cooling off in the property markets as the effects of the lockdown start kicking in. So for those of us thinking of buying property to rent it out, it’s time for reflection.
Buy to let and Cash ISA have a downside
Sure, interest rates have crashed along with the stock markets. This means loans for property may be available at low rates for the foreseeable future. As a result, the cost of buying to let will be attractive. But if the rental market is far from thriving too, lower costs might not amount to any gains. In fact, if travel restrictions coupled with the recession continue, it’s conceivable that we’ll be stuck with property that’s a monthly drain on resources and offers limited income.
Cash ISAs aren’t a very good idea at this time either. A time of low interest rates is never a good one to hold money in accounts in the hope of earning a passive income. The Bank of England has cut the key policy interest rate to 0.1%. I’d put my money in a Cash ISA only if I was in the process of deciding where to put it for the long haul.
Focusing on growth investing
I’d much rather buy FTSE 100 stocks, not with the idea of making a passive income, buy to grow my capital. The fact is, while plenty of high-quality stocks still offer a dividend income, income investing may soon be out of favour. Dividends are being slashed across the board. Retail banks, for instance, have cut them this week. More could follow as business prospects dim.
Resilient in the time of crisis
FTSE 100 stocks that have proven themselves to be resilient through previous stock market crashes are ones I’m focusing on as growth investments. The FTSE 100 electricity and gas provider National Grid (LSE: NG) is one example. It’s not as if it wouldn’t be affected by the lockdown. According to a recent Financial Times report, the UK’s electricity demand dropped because of it. But NG seems to be standing strong.
It put out a reassuring press release in mid-March saying that energy supply shouldn’t be a concern as more people stay at home. Further, at a time when other companies are slashing forecasts for the rest of the year, NG hasn’t said very much at all. It’s too early to read too much into it, but I consider that an early positive indicator too. Its dividend yield, at 5.5% as I write, is a touch higher than that for FTSE 100 as a whole. I think it’s a stock worth considering.
