I struggle to understand why people would invest in a buy-to-let property when they can buy top UK shares so easily and cheaply.
Setting yourself up as an amateur landlord is a total faff. Despite that, many are rushing to take advantage of chancellor Rishi Sunak’s stamp duty holiday, which applies to buy-to-let as well as home purchases. My advice is save yourself the trouble and worry. Buying UK shares is far more tax efficient, and involves much less responsibility.
You can trade equities in seconds, and take all your returns free of tax inside a Stocks and Shares ISA. By contrast, the average property purchase takes three months to complete. Even with the stamp duty holiday, you still face a 3% stamp duty surcharge targeted at investors. You also have estate agency fees, legal fees, mortgage arrangement fees, and the cost of doing up the building.
I’d choose UK shares over buy-to-let
You don’t have any of that when you buy UK shares. Just flat 0.5% stamp duty charge, and a dealing fee of around £10 a pop. You can still get exposure to the UK housing market by investing in housebuilding stocks.
They’re also benefiting from the stamp duty holiday, according to Ross Mould, investment director at online wealth platform AJ Bell. “In their most recent results or trading updates, housebuilders have noted an increase in order books, reservations rates and levels of customer interest.”
You have a good range of UK housebuilder shares to choose from. Redrow, Vistry and Persimmon all flagged increases in their order books or forward sales, while Barratt Developments and Bellway Homes noted increased reservations per active sales site. Taylor Wimpey also alerted investors to growing customer appointments and website traffic.
These national housebuilders aren’t just benefiting from the stamp duty holiday, but also the Help to Buy scheme, which is currently assisting up to 40% of buyers.
I don’t need help to buy FTSE 100 stocks
The big worry for investors in UK property shares is what will happen when the stamp duty holiday and Help to Buy wind down on 31 March 2021. Who knows, they might be extended. I can’t see this government letting house prices crash. Or any government.
The big housebuilders valuations reflect this concern, I think, as these UK shares peaked before the chancellor announced his stamp duty break on 8 July. Taylor Wimpey trades at just 5.2 times earnings, Persimmon at 9.4 times earnings, Barratt trades at 12 times earnings and Berkeley Group at 13.7 times.
Current stock market uncertainty makes now a good time to buy UK shares like these with the aim of holding for the long term. The property market is uncertain, but you have even more exposure with buy-to-let. Plus all the additional bother of managing a property yourself.