News and Views

Investing in property has been popular in recent years, with many people buying flats or homes to rent out as an investment strategy for later life. But while buy-to-let landlords have benefited from rental growth, as well as capital growth in house prices, recent changes to the tax system have made this area of investment less attractive. Demand for property in the UK far outweighs supply and this has meant a buoyant market and significant price rises in many areas. But what are the potential risks and benefits of investing your money in property?

Pros

  • The value of UK property has had successful returns in recent years and it is widely regarded as a relatively safe long-term investment.
  • You have the potential to make decent returns from rental yields.
  • Property is a physical asset, which you can choose to live in or use as a holiday home if you don’t want to let it on the open market.
  • You can sell your property before you retire and invest the profits elsewhere.

Cons

  • Liquidity, whilst there may be demand in the market for property, the process and timescale of selling a property does take a long time. This contrasts with shares and investment funds where at the click of a button the sale is done and proceeds can be back in your account in a matter of days.
  • Diversification, by only investing in property or holding little elsewhere, you are over exposing yourself to the risks associated with one asset class and the return could be severely diminished during void periods or maintenance needs. With investments, a portfolio spanning multiple asset classes can be constructed to diminish the risk of exposure to single asset types.
  • While prices have risen in recent years, the future may turn out to be rather different. That’s because interest rate rises and the potential for a change in government could hold back the property market moving forward, especially since many people feel that the market has become overvalued and unaffordable for many prospective buyers.
  • Property prices can go down as well as up, potentially leaving you in negative equity if you have a mortgage.
  • You now have to pay additional stamp duty on any property that isn’t your primary residence. 
  • You may also have to pay income tax on profits earned from letting out your property. Unlike shares, property cannot be purchased within an ISA or a SIPP (unless it is commercial property in the latter) and so, a capital gains tax liability may apply if you sell your second home at a profit. Shares, meanwhile, can be more easily sheltered from taxes, which makes them far more appealing from a tax perspective than property.
  • It requires a lot more time and effort to buy, maintain and sell a property than it does to build up investment funds. Even if you outsource the management of a property to an agent, property investment comes with a certain amount of stress. There are inevitable void periods when you have no return, potential maintenance issues and (if you own a flat) the potential for one-off service charges to pay for repairs to the building.
  • If you plan to live in the property you invest in, you’ll need to think about where you will live when the time comes to release the capital.

If you are considering buying an investment property but would like to talk the decision through or if you require help on any other wealth planning area, contact Jonathan on +44 (0)20 7398 1137 or by email at wealthplanning@whirelandwm.com for a free initial meeting to see how we can work together.