Buy-to-let Is Dead. Long Live Stocks & Shares!

For the past two decades, buy-to-let has swept all before it. Investors have been royally rewarded with capital growth from rising house prices and regular income from tenants’ rent. Buy-to-let has ruled the roost and hundreds of thousands have seized the opportunity to set themselves up as amateur landlords.

Bye-bye buy-to-let

The British love bricks and mortar more than they love the Queen, so you can see the appeal. But now buy-to-let’s glorious reign is set to come to an end, cruelly slain by scheming Chancellor George Osborne.

From 1 April, the Chancellor is slapping a 3% surcharge on investors buying rental properties or second homes. Stamp duty on a £250,000 buy-to-let will quadruple from £2,500 to £10,000, while on a £400,000 property it will more than double from £10,000 to £22,000. There has been a surge of investors looking to beat this deadline, but unless your transaction is nicely underway you’ll miss it, as you can’t guarantee that you’ll find a property, arrange a mortgage and complete in time.

Death by tax cuts

Higher stamp duty is only the start of the pain for buy-to-let. From April next year, the Chancellor will begin slashing away at higher rate tax relief on mortgage interest for investors, a four-year process that will eventually cut it to just 20%. He’s also snipping away at wear-and-tear allowances. The Chancellor says he’s doing this to help first-time buyers compete with equity-rich investors. Property investors call it a naked tax grab. Either way, the result is the same: buy-to-let has been dethroned.

The current rush of last-minute investors is likely to hit an abrupt halt 1 April. This could poison the wider property market, given that investors made up 15% of purchases last year. One in seven existing landlords now plan to sell at least some of their properties as a result, according to investment platform Finally, first-time buyers may have something to celebrate.

Let it alone

I’ve been tempted to invest in buy-to-let, but was always deterred by the effort of finding a property and the related expenses of stamp duty, conveyancing, estate agency fees and mortgage arrangement charges. Then there’s the cost and bother of doing  up the property, paying for maintenance and repairs, and advertising for tenants (and replacing or ejecting them as required). Compare that to how easy it is to buy a stock or fund: you can trade in seconds for a £10 fee plus 0.5% stamp duty, and well, that’s it.

Property isn’t just overtaxed, it also looks overvalued to me. In London, prices leapt another 14% in the last year, according to latest Land Registry figures. Affordability is a growing problem across the UK, even with mortgage rates falling below 1%. By contrast, the FTSE 100 has fallen 15% since its highs of last spring, and is starting to look attractively valued again. Better still, you can invest free of tax using your stocks and shares Isa allowance, and without any of the hassle involved in becoming a landlord.

Buy-to-let is dead. Long live the stock market!

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Harvey Jones has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Apple. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.