Buy-to-let is dead but stock markets are alive and kicking

Why bother investing in property when stocks and shares are simpler, easier and more lucrative, says Harvey Jones.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

So farewell then, buy-to-let. The glory years are now gone. Like an ageing pop star you were adored by the masses but cut an increasingly sorry figure today, as once starry-eyed investors abandon you in droves. Did it have to end this way?

Burning down the house

Buy-to-let was one of the hottest investments of the last two decades but has fallen victim to its own success, after former Chancellor George Osborne spotted its cash cow potential. He also saw it as a vote winner: cracking down on amateur landlords allowed him to pose as the first-time buyer’s friend.

The stamp duty surcharge, reduced wear and tear allowances, abolished higher rate mortgage interest tax relief, and the ban on letting agency fees have destroyed the financial case for investing in bricks and mortar. The results can be seen in the growing exodus of landlords from the market.

Another brick in the wall

Estate agents report an average of four landlords selling up per branch in March, up from three in February, according to new research from landlord association ARLA Propertymark. The rush of new buyers is also drying up, with buy-to-let purchases halving in the last year from 142,000 to just 70,000, figures from the Council of Mortgage Lenders show.

First-time buyers are celebrating, with registrations jumping nearly 20 per cent in April and almost 30 per cent in London, according to estate agency Haart. Investors should be celebrating too, because buy-to-let has been an expensive distraction.

Winner takes it all

Investing in property has one great advantage over stocks and shares, namely gearing, the ability to borrow to invest. In almost every other respect, investing wins. First, you can buy and sell stocks and shares in a matter of seconds, a process that takes months with property, which is highly illiquid and cannot be offloaded if prices are tumbling or you need money in a hurry.

Trading shares is also a lot cheaper. You can do it from £10 a pop, with minimal stamp duty of 0.5%, and platform fees. By contrast, property investors have to stump up stamp duty (£14,000 on a £300,000 property), plus conveyancing and mortgage arrangement fees, refurbishment and maintenance costs, and the expense of finding tenants (and clearing up after them).

Homeward bound

Stocks and shares also have the tax edge, as you can take all your returns free of income tax and capital gains tax, inside your £20,000 ISA allowance. You are liable to pay income tax on rents and capital gains tax on property growth, charged at a higher rate of 28%.

Best of all, stock markets have quietly thrashed the housing market. The Halifax house price index shows prices up just 3.5% over the last year, while the FTSE 100 grew a whopping 19.7%. The FTSE 100 rose 53% over five years against 36% for property, and 69% against 14% over 10 years, according to figures from Fidelity International.

Same old song

Better still, you can take those returns free of income and capital gains tax inside the annual £20,000 Isa allowance. After all these years, the stock market still has the best tunes.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Investing Articles

Young woman holding up three fingers
Investing Articles

I’d earn £1,260 in passive income by investing a £20k Isa in these 3 ultra-high-yield stocks

I'm on the hunt for passive income and I reckon the following FTSE 100 stocks should help me generate it…

Read more »

Asian man looking concerned while studying paperwork at his desk in an office
Investing Articles

Could these beleaguered FTSE 100 stocks stage a turnaround?

Could these FTSE 100 stocks be primed for recovery after difficult times? Sumayya Mansoor takes a look at what could…

Read more »

Young black man looking at phone while on the London Overground
Investing Articles

Is this FTSE 100 giant one of the best income stocks out there?

Our writer takes a closer look at this medical business as a potential income stock for her portfolio, even though…

Read more »

Bournemouth at night with a fireworks display from the pier
Investing Articles

£2k in a Stocks and Shares ISA? One top stock I’d buy before the New Year!

Here's one US stock this writer thinks could grow for a long time to come and deliver attractive returns in…

Read more »

Front view photo of a woman using digital tablet in London
Investing Articles

How I’d invest £4k in my SIPP with the aim of doubling my money

Jon Smith talks through how he'd use dividend growth stocks to grow a SIPP pot consistently to achieve strong long-term…

Read more »

Stack of one pound coins falling over
Investing Articles

£3 a day vs £30 a day passive income plan

What’s the difference between a £3 a day and £30 a day passive income plan? More to the point, how…

Read more »

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

Is the British American Tobacco (BAT) share price NOW too cheap to miss?

The BAT share price has sunk again after another chilly market update. But is the company now a brilliant bargain…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

I’m using December to snap up cheap shares!

This Fool is keen to use this month to add some cheap shares to his portfolio. Here he examines one…

Read more »