In the past, buying property and renting it out (buy-to-let) was an easy way to make money. With UK house prices continually rising, many people made a killing.
Yet looking ahead, I’m not convinced that buy-to-let property is the best asset class to invest in. Here’s a look at why I won’t be touching buy-to-let in 2020 and where I’ll be investing instead.
House price uncertainty
One thing that concerns me about buy-to-let is that house price growth has slowed considerably in recent years.
According to the UK House Price Index, between the start of January 2000 and the end of December 2016, the average property in the UK increased in value from £85,000 to £216,000. That equates to annualised growth of around 6%. However, since January 2017, the average property price has only increased to £234,000, which equates to annualised growth of less than 3% over that period.
I suspect that this lower level of growth is likely to persist in the near term due to Brexit and general economic uncertainty. Do I want to be throwing a ton of money into an asset class with low growth prospects? Not particularly.
Extra stamp duty and higher mortgage rates
Next, I don’t like that fact that you have to pay extra stamp duty (an additional 3%) on buy-to-let properties as well as higher mortgage rates. Mortgage interest tax relief is also being phased out. To my mind, these extra costs and the removal of interest tax relief make the asset class far less attractive as an investment.
The hassle of it all
Finally, there’s the hassle of investing in buy-to-let. Not only do you have to find good tenants who will look after your property and pay their rent on time, but you also have to take care of repairs and maintenance. And don’t forget all the buy-to-let regulation that you need to stay on top of such as minimum space requirements and minimum energy efficiency standards.
All things considered, I think there are better investments than buy-to-let right now.
Here’s where I’ll be investing instead
One asset class that I will be investing in next year, however, is shares. In my view, shares offer a number of advantages over buy-to-let.
For starters, I really like the fact that you can invest £20,000 per year in shares through a Stocks & Shares ISA completely tax-free. This means that investing in shares can be very tax-efficient.
Secondly, I love how easy investing in shares has become. These days, you can open an account in just minutes and monitor your account and place trades from your smartphone wherever you are.
Thirdly, I like the fact that shares are very liquid. If you need access to your capital, it’s easy to sell some shares.
Finally, compared to buy-to-let, I see a lot more growth potential in shares, despite the fact that global equity markets have had a good run over the last decade. Given the growth that companies such as Apple, Microsoft, and Google are generating right now, I expect stocks to continue delivering healthy returns in the years ahead.
- The State Pension could have you working until 67. Here’s what I’d do to retire early
- The Tullow Oil share price has crashed 55% today. Here's what I'd do now
- Forget the top Cash ISA rate. I'd pocket 7.8% here
- This is how much £1K invested in BT shares 5 years ago would be worth now. Ouch!
- The Lloyds share price is rising - should you buy it and these election winners?
- Top shares for 2020
Edward Sheldon owns shares in Apple, Microsoft, and Alphabet (Google). Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Alphabet (C shares), Apple, and Microsoft and recommends the following options: long January 2021 $85 calls on Microsoft. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019