Buy-to-let or UK shares? That is the question most investors find themselves asking at some point. Right now, investors have a real incentive to buy property, thanks to the stamp duty holiday, which applies to buy-to-let landlords as well as residential buyers.
For me, the answer has always been UK shares, and current events do not change that. The vast majority of my long-term wealth will go into FTSE 100 and FTSE 250 stocks rather than investment property, and here’s why.
The UK property market is buoyant right now. Prices rose 6.5% in the year to December, according to Nationwide. Rock bottom interest rates, the urge to exchange cramped urban flats for houses with gardens, and the stamp duty holiday are mostly to thank/blame for that. So why am I buying UK shares in the middle of a house price boom?
Here’s why I’m buying UK shares
Personally, I do not believe the boom can last much longer. It may already be tailing off, as new research from the Royal Institute of Chartered Surveyors shows buyer enquiries starting to slide. Its members expect sales to slow dramatically in 2021.
Currently, the stamp duty holiday is due to end on 31 March. It may already be too late to put in an offer and complete in time, given transaction delays. I have a sneaking suspicion that Chancellor Rishi Sunak will extend the tax break, just as he extended furlough, but we don’t know yet. Another worry is that the Help to Buy scheme will be scaled back from March, and of course furlough ends as well. All this will come as unemployment starts to peak, adding to the pressure on property.
I am particularly concerned that the latest boom has pushed house prices to unsustainable highs, and this will aggravate any crash. I don’t expect a total meltdown as demand for property is too high, but I am wary. By contrast, I think UK shares could be set for a good 2021, having underperformed by international standards.
Buy-to-let is too much bother
According to MSCI, the UK All Cap index fell 14.55% in the year to 30 November. By comparison, the rest of the world has climbed 11.19%, with the US up 16.56%. The UK has been underperforming since the EU referendum in 2016. So while UK property looks overpriced, UK shares do not.
As the vaccine programme kicks in, I’m hoping the economy will be back next year, making now a good time to buy UK shares. There are uncertainties, though, primarily Brexit. Also, the pandemic will not suddenly end but could drag on tediously. But I’m still optimistic for a brighter 2021. We need it.
There is another reason why I would buy UK shares over buy-to-let. They are so much easier to trade, and you can hold them free of all income tax and capital gains tax inside a Stocks and Shares ISA. Property is horribly illiquid, and it takes four or five months to complete a transaction these days. I much prefer the flexibility of FTSE 100 and FTSE 250 stocks, and that’s why I’m buying them to fund my retirement.
Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.