The buy-to-let affair is over but shares continue to shine – Harvey Jones

brick-house

The love affair is over. The dream has died. The British infatuation with all things bricks and mortar has finally come to an end.

New figures from landlord association ARLA Propertymark show investors rushing out of buy-to-let, with an average of four selling up per estate agency branch in March, up from three in February.

At the same time, fewer are being tempted into the market, with purchases halving in the last year from 142,000 to just 70,000, according to separate figures from the Council of Mortgage Lenders.

After more than twenty passionate years the buy-to-let looks doomed, but this one did not die a natural death.

Former Chancellor George Osborne has forcibly separated the British public from its one true investment passion. The Prudential Regulatory Authority (PRA) then doused them in cold water.

 

Tax attack
Osborne’s tax assault started with last year’s stamp duty surcharge on second properties and reduced wear and tear allowances.

This April saw the scrapping of higher rate tax relief on mortgage interest repayments, and the ban on letting agent fees.

The PRA turned the regulatory screw, forcing lenders to impose more stringent affordability tests on buy-to-let applicants. No wonder investors’ ardour has cooled.

 

First love
Landlords may be heartbroken but their joy came at the expense of first-time buyers, who were competing for the same one and two-bedroom flats.

As landlords decline, first-time buyers are fighting back, with registrations jumping nearly 20 per cent in April and almost 30 per cent in London, according to estate agency Haart.

The age of the average first-time buyers has fallen from 32 to 31, giving some hope to the next generation of homeowners.

 

Bad buy
I always felt that buy-to-let was overrated as an investment, especially in comparison to stocks and shares.

Firstly, it is highly illiquid. It takes months to buy and sell a property, whereas you can trade stocks and funds in seconds.

Property is also costly to buy with stamp duty, conveyancing and mortgage arrangement fees, refurbishment and maintenance costs, and the expense of finding tenants. By contrast, investing is cheaper and easier than it has ever been.

 

Taking stock

Finally, and crucially, stock markets have quietly thrashed the housing market. House prices rose just 3.5 per cent over the last year, according to Halifax, while the FTSE 100 grew a whopping 19.7 per cent.

This is no flash in the pan, the FTSE 100 has risen by 53% over five years against just 36% for house prices, and has triumphed by 69% to 14% over 10 years, according to Fidelity International.

Better still, investors can take those returns free of income and capital gains tax inside the annual £20,000 Isa allowance.

The only clear advantage that buy-to-let can boast is gearing, allowing ordinary people to borrow to invest, and this has its risks.

The buy-to-let affair may be over but most people should find greater fulfilment in the stock market.

 

 

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