4 May 2022
The UK has had a love affair with property for decades, the appeal of a tangible asset that has the potential to rise in value, in addition to providing a regular rental income, has led millions of people to invest in a buy-to-let property, since the market was opened up to private investors in the 1990s.
House prices have also been accelerating, we have seen an 11% rise in the annual rate of house price inflation from March 2021 to March 2022 1. However, analysis of the financial returns provided by property compared to investing in the stock market make surprising reading. While many property owners have done well, it is the stock market that has been the best performer when viewed over the long term.
Analysis by wealth manager Brewin Dolphin shows that £100 invested in the FTSE All Share from 1986 would have provided investors with over £1,707 to date, assuming that the dividends were reinvested, providing a total return of 1706.7%, before charges. On the other hand, those who invested in buy-to-let property would have an investment worth £846.82, equating to a 847% return2.
Investing in the stock market can provide you with two types of returns, capital growth as well as investment income, dividends or interest. If this income is reinvested, this can lead to even greater growth over time.
Rob Burgeman, investment manager at Brewin Dolphin said, “Many people can be nervous about investing in the stock market and investing in the short-term can be risky and volatile but with the right financial advice investing over the long term the stock market can provide solid returns and help you achieve your financial goals.
“The UK’s love for property is insatiable, however with rising inflation and the cost of living biting our wallets, we could see a slowdown of the housing market towards the end of the year.”
Rental income from a buy to let property is not guaranteed and landlords should consider the income compared to the value of the property, giving them a gross yield. Assessing an investment yield can be a good way to compare different properties and different types of investments. Location greatly affects the rental yield.
Rob Burgeman said, “As property values have increased over the years, we have been lulled into a false sense of security, amplifying the risk for buy-to-let investors. However, the tax implications have made it a less prudent investment choice. It’s likely many buy to let investors don’t fully understand their rental yield and many people would need to consider how they can mitigate the erosion of their profits, whether by changing the ownership structure, paying down debt or even selling up and investing in a more tax-efficient sector.
“Worryingly many of Britain’s retirees think buy-to-let is the way out of their retirement conundrum. It’s best to take some smart financial advice, as many don’t consider the risks of buying a highly illiquid asset. Void periods, hidden costs and the perils of being a landlord in later life are just some of the issues with buy-to-let. If you’ve given up work, do you really want to begin a new career as a property manager?”
1 https://www.halifax.co.uk/media-centre/house-price-index.html
2 Source – Brewin Dolphin using FTSE All Share for stock market data, ONS for rent price and Nationwide house price index. Rent is calculated as a 5% return from concurrent house prices and any previously generated cash, discounted yearly for inflation.
Disclaimers
The value of investments, and any income from them, can fall and you may get back less than you invested. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. Neither simulated nor actual past performance are reliable indicators of future performance. Performance is quoted before charges which will reduce illustrated performance. Information is provided only as an example and is not a recommendation to pursue a particular strategy. Information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness.
PRESS INFORMATION
For further information, please contact:
Richard Janes richard.janes@brewin.co.uk / Tel: +44 (0) 20 3201 3343
Siân Robertson: Sian.Robertson@brewin.co.uk / Tel: +44 (0) 20 3201 3026
Chloe McFarlane: chloe.mcfarlane@brewin.co.uk / Tel: +44 020 3201 3490
Payal Nair payal.nair@brewin.co.uk / Tel: +44 (0) 20 3201 3342
NOTES TO EDITORS
About Brewin Dolphin
Brewin Dolphin is a UK FTSE 250 provider of discretionary wealth management. With £59.0* billion in total funds, we offer award-winning, personalised wealth management services that meet the varied needs of our clients including individuals, charities and corporates.
Our services range from bespoke, discretionary investment management to retirement planning and tax-efficient investing. Our focus on discretionary investment management has led to significant growth in client funds and we now manage £52.0* billion on a discretionary basis.
Our intermediary business manages £19.0* billion of assets for over 1,700 advice firms either on a discretionary basis or via our Managed Portfolio Service, the MI Brewin Dolphin Voyager fund range and Sustainable MPS.
In line with the premium we place on personal relationships, we’ve built a network of 33 offices across the UK, Jersey and Republic of Ireland, staffed by qualified investment managers and financial planners. We are committed to the most exacting standards of client service, with long-term thinking and absolute focus on our clients’ needs at the core.
For more information, visit: www.brewin.co.uk
*as at 31st December 2021.
Brewin Dolphin is authorised and regulated by the FCA (Financial Services Register reference number 124444)