Property investment versus the stock market

John Goodall is CEO of Landbay


The common denominator for investing in property and investing in the stock market is that they should both be viewed as long-term investments.

Many people invest in both as part of a diversified portfolio but they are very different and should be viewed as such. The stock market fell sharply in March 2020 when the first national lockdown was announced but it has picked up since then, rising and falling in response to good and bad news. For instance, the stock market rose in November on the back of a Covid vaccination programme being announced. On the whole, I think the stock market has fared reasonably well considering what has been happening in the economy on the back of the Covid pandemic.

At the same time the property market has seen a hive of activity and house prices have been rising with the second half of last year being particularly strong. In November annual house price growth was 7.6%, according to the Halifax index.

I would say that property is less volatile than the stock market and the income it produces is more reliable than stocks. You can use leverage on a property investment in the form of a mortgage. With a £50,000 deposit you can get £200,000 worth of exposure to the property market because you are using a mortgage to pay for 75% of the property. If the housing market rises by 5% the equity in that property goes up by 20%, minus the cost of finance.

In the stock market that doesn’t happen. If you have £50,000 to invest you can only buy £50,000 worth of stock.

On the flip side there is a risk if the property market falls by 5% you lose 20% equity in your property. But property investment is for the long haul and house prices have historically risen over time.

The extension to the stamp duty holiday by three months to 30 June, announced in the Budget, may spur on a few more landlords to buy but they would need to be quick if they are using a mortgage to purchase.

Another temporary change to stamp duty is the threshold where stamp duty starts to be paid. This is being raised from £125,000 to £250,000 from 1 July until the end of September, so again there is a bit more time to buy a property under £250,00 and not have to full pay stamp duty. Landlords, of course, still have to pay the 3% stamp duty surcharge for owning more than one property.

We are seeing a significant number of people who want to invest in property for the first time as well as landlords who have one or two properties and want to buy another one. Property is an attractive long-term investment for the income landlords can generate via rent while many are building a property portfolio as part of a financial plan.






Show Comments

Enter your e-mail address to receive updates straight to your inbox