Investing in Buy-to-Let Property vs. a Portfolio of Equities and Bonds
According to the Office for National Statistics average UK house prices increased by 13.2% over the year to June 2021, the highest annual growth rate seen since November 2004. One factor will have been the Chancellor’s Stamp Duty holiday, which saw an estimated 1.3 million buyers pay no tax on the first £500,000 of their property price. This came to an end on 30th June with a tapered stamp duty charge until the full charge is reinstated on 1st October.
This has encouraged a flurry of activity in the buy-to-let market. Investing in property is appealing because it gives you the benefit of something tangible that you can see which can generate rental income and is a hedge against inflation. Residential property prices just seem to keep going in one direction. After all the semi-detached Dorma bungalow my then fiancé and I purchased in Cardiff in 1968 cost just £3,800 and we needed a £3,400 mortgage over 25 years.
We all need somewhere to live and it’s good to have the security of owning our own home. For those who are wealthy enough its also good to invest in UK bricks and mortar property. The problem comes when we fail to heed the old adage of not ‘putting all our eggs in one basket.’ If we sink all of our money into one or two properties we can end up with an investment which is illiquid and may let us down badly if we suddenly have a need for capital. This is even more of an issue if we are borrowing to purchase that property.
Polling conducted by ICM Unlimited for Citizens Advice shows that, in the UK, almost 1 in 10 private renters are behind on their rent. This equates to over 350,000 tenants across the country and therefore possibly hundreds of thousands of landlords who are not receiving the rental income they expected.
My argument is not about avoiding buy-to-let as an investment as that would clearly be nonsense, but that you should consider other hassle free investment alternatives as these may allow you to achieve your objective whilst keeping your investments flexible and able to cope with an unknown future.
Dr Rugg, the author of a recent study led by the University of York’s Centre for Housing Policy and funded by the Nationwide Foundation, has said ‘Letting property looks altogether different to landlords now: it looks like a much riskier proposition, delivering a lower level of return and with a lot more hassle.’ ‘As one landlord said to me, ‘stocks and shares may not deliver the same level of return, but they don’t phone me on a Sunday morning because the boiler’s bust’.
I need to point out that I have never invested in a buy-to-let property as such, although during my career as a financial adviser I have previously owned three commercial office premises, two of which were partially sub-let.
A very useful alternative to buy-to-let is to invest in a portfolio of equities (i.e. shares in companies) and bonds (i.e. loans to companies). The ratio of each will depend on your objectives, timescale and attitude to risk. Such a portfolio is a highly liquid investment that can both build long-term wealth and provide income via dividends and interest. It can also be very tax efficient especially as money can be transferred each year into a stocks & shares ISA account invested in the same portfolio.
|If you would like to see a more detailed comparison of buy-to-let vs a portfolio of equities and bonds please follow this link https://usefulmoneyguide.uk/buy-to-let-vs-equity-bond-portfolio/|