FTSE 100 stocks and UK house prices have both been booming over the last year. Today, it’s the turn of property prices to hit the headlines, as latest Nationwide figures show they have jumped 10.9% in the year to May.
This is incredible, given the challenges of the last year. Record low mortgage rates, the stamp duty holiday and a widespread urge for space following the trauma of lockdown are driving demand. Yet houses are not the only assets rising. FTSE 100 stocks have also been going gangbusters.
The index of blue-chip shares is up 14.3% over the last year, to trade at 7,102. That’s slightly faster growth than house prices (with dividends on top). But this short-term success isn’t the reason I favour FTSE 100 stocks over becoming a buy-to-let investor. I think they are streets ahead for a host of reasons.
Buy-to-let is a bother
FTSE 100 and FTSE 250 stocks, which I focus my efforts on, are just so easy to buy. I can buy them in seconds for a flat dealing fee of £10, or less. In today’s overheated market, buying property takes four to five months from bid to completion.
Another reason I favour FTSE 100 stocks is that the stamp duty is just 0.5%. Anybody buying property today is almost certain to miss the stamp duty holiday due to processing delays, while buy-to-let investors face a 3% surcharge. From 1 October, a £250,000 property will incur £10,000 in stamp duty. The bill rises to a thumping £24,000 on a £450,000 investment property. Plus there are other costs, such as legal costs, survey and mortgage arrangement fees.
After I’ve chosen my FTSE 100 stocks, I don’t have to do very much, apart from check how they’re doing from time to time. Of course, I also have to accept that they might not be doing very well. But that relatively easy approach isn’t the case with property. Owners have to do up their property, maintain it, pay utility bills, meet council tax obligations, and so on.
I’m sticking with FTSE 100 stocks
If I rented my property out as a buy-to-let, I’d need to find tenants, interview them, take deposits, answer their emergency calls and replace them when they left. Either that, or pay a letting agent to do it for me. As any landlord will tell me, the regulatory burden has increased massively. With FTSE 100 stocks, there’s none of that.
I know buy-to-let can be a good option for some people. But it’s not for me. I don’t want to pay capital gains tax on any profit when I sell, at either 18% or 28%, depending on my tax bracket. When I buy FTSE 100 stocks inside my Stocks and Shares ISA allowance, I don’t have to worry about CGT at all. My dividend income will be free of tax as well, whereas rental income from tenants is taxable. I don’t even have to mention ISA holdings on my tax return. That saves a lot of admin too.
That’s why I’m shunning buy-to-let, and will stick to investing in FTSE 100 stocks instead.
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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.