2020 has been an extremely bumpy ride for UK share investors. 2021 could be another difficult one too if a Covid-19 vaccine rollout faces challenges and Brexit turbulence hits the economic recovery. At times like these the appeal of bricks-and-mortar assets like buy-to-let property improves considerably.
And boy, is buy-to-let demand rocketing right now. Data from Hamptons shows landlords accounted for a whopping 15% of ALL property purchases in November. This is the highest level since December 2016, the estate agency says.
And it’s being driven by strong pent-up property demand and a rush to save on stamp duty before the tax holiday ceases on 31 March. Signs that “rental growth is picking up steam” aren’t likely to have done buy-to-let demand any harm either.
Buy-to-let bills have leapt
The motivations behind the buy-to-let rush are obvious. But I’m afraid it’s not a train I’m not prepared to jump on. I’d much rather invest in UK shares today, simply because the costs and the hassle of operating a buy-to-let portfolio are growing by the year.
Hamptons data in February revealed how the number of British landlords declined to seven-year lows in 2019. And the same issues that have prompted the recent buy-to-let exodus remain in play today. Higher HMRC bills, caused in large part by the loss of critical tax relief, is one issue. Rising agency bills and increasing maintenance and regulation costs are another.
Landlords might be saving a packet by avoiding stamp duty today. However, the colossal effect of these other costs — bills that have caused the average landlord profit to fall to just £2,000 in recent times — still casts a huge shadow over what returns can be expected from buy-to-let.
Why I’d rather buy UK shares
This is why I’d much rather invest in UK shares today. Firstly, data shows long-term investors like me make an annual average return of 8-10%. This is much better than most buy-to-let landlords can expect to make today.
Secondly, buying UK shares saves investors from the day-to-day hassle that often accompanies property rentals. And thirdly, I don’t have to stump up a huge wad of cash to buy a buy-to-let property and get the ball rolling.
If you still want to get a slice of buy-to-let, fine. I wouldn’t pooh-pooh the idea as rents in this country continue to rocket. But I’d rather do this by buying UK shares such as PRS REIT, an expert in the letting of family homes to private renters. Or I’d snap up shares in housebuilders such as FTSE 100-quoted Persimmon or Barratt Developments.
What’s more, if you buy these shares in something like a Stocks and Shares ISA you can avoid hefty bills from the taxman. The property rentals market can still help individuals make a great return on their cash. However, I don’t think investing directly in buy-to-let property is the best way to go about this.