House prices are flying right now. But I think property’s trading at inflated levels and I’d rather focus my firepower on buying top UK shares instead.
Everybody loves bricks and mortar and chancellor Rishi Sunak’s stamp duty holiday has got people hitting the property portals again. Today’s Land Registry figures show prices at an all-time high of £239,000 after rising by 2.5% in the year to August.
Halifax puts house price growth at 7.3%, while Nationwide figures show a 5% gain. Either way, we’re in the middle of a mini property boom, despite the pandemic. That scares me. I’d buy top UK shares while they’re cheap, rather than UK property while it’s expensive.
I’d buy top UK shares instead of property
My worry is the house-price mini-boom isn’t going to last. I think it’ll fade well before the stamp duty holiday ends on 31 March next year. Property experts are urging buyers to get their offers in today, to beat the deadline amid lengthy delays in local authority searches.
By the new year, the excitement may be over, just as Covid-19 job losses and Christmas debts take their toll. Mortgage lenders know this, and are reluctant to offer mortgages to those with deposits below 25%. They want to protect themselves against a spike in negative equity and repossessions.
By contrast, the stock market has already been through its crash, having fallen by a third in March. It’s since recovered by around 15%, but you can still find plenty of top UK shares trading at bargain prices.
Of course, equities could crash again. The second wave of the pandemic is causing jitters, plus we still have the prospect of a no-deal Brexit. However, the difference with buying UK shares is that this isn’t an all-or-nothing transaction, like a property purchase.
You can start drip-feeding money into the market today, and pick up top UK shares at reduced prices. If the market falls, invest a bit more at the new, lower price. You should aim to hold for the long term, which allows share prices plenty of time to recover, and gives your dividends to roll up in value.
Beware buy-to-let tax attack
Mortgage rates cannot fall any lower. That suggests to me house prices cannot rise much higher. I’m not predicting a massive house price crash, as demand still outstrips the supply of homes. Just think twice before being seduced by the stamp duty holiday.
There’s another advantage to buying top UK shares. You can take all your income and capital gains free of tax inside a Stocks and Shares ISA. Property investors can only dream of such a benefit, as buy-to-let investors reel under a sustained tax attack from the Treasury.
There are plenty of bargains on the FTSE 100 and FTSE 250. As an investment, UK shares are difficult to top right now.