No money topic is too big or too small. Welcome to the Mouthy Money Podcast,…
Read More →
Is property still Britain’s best investment? The numbers aren’t adding up
Property has long been seen as a cornerstone of wealth building in the UK, but the numbers now paint a more complicated picture.
Buying property has long been seen as the foundation of financial security.
Rising house prices over past decades have supported the idea that property is a reliable route to wealth. However, recent data suggests the picture is more mixed than the traditional narrative implies.
Speaking on the Mouthy Money podcast, Marianna Hunt, associate director at Fidelity International outlined why property may no longer stand out as clearly as it once did when compared with other types of investment. Here’s what you need to know.
What the numbers say
Hunt and her colleagues at Fidelity looked at the real returns from different asset classes. Real returns are those achieved after inflation has been taken into account. On that basis, recent performance from property has been relatively weak.
She explains: “We looked at the real return of various types of investments. Property, which has been the darling of British households, has actually lost people money in real terms over the past three and five years.
“Over the past three years it has fallen by 9% in real terms and over the past five years it is down 2%. It is only over a decade that property has delivered a positive real return of around 6%.”
When compared with global stock markets, the difference is notable. “Global stocks have risen by 25% over three years, 45% over five years and more than 130% over 10 years,” Hunt says.
Those figures do not mean property is a poor choice or that shares will always perform better. Hunt is clear that past performance is absolutely no guarantee of what will happen in the future. However, the data does challenge the idea that property is a uniquely strong performer over all time frames.
It is also worth noting that the property numbers quoted are purely based on price changes. Rental income, which can be a significant part of the return for buy to let investors, is not included in those figures.
The limits of “my property is my pension”
One of the themes Hunt is keen to challenge is the slogan often heard in the UK: “my property is my pension”.
“Property should absolutely be part of the mix,” she says. “But it cannot be the only part. Just ploughing all your money into property at the expense of ISAs and pensions could leave you in a precarious situation in later life.”
Downsizing is often presented as a simple solution to fund retirement. Hunt is cautious about relying on that. She points to a shortage of suitable homes for people looking to move to smaller or more accessible properties in later life.
There is also no guarantee that it will be easy to sell at the right time or that someone will want to leave a long-term family home.
Selling property is not always straightforward. Larger, more expensive homes can often sit on the market for long periods. For older owners who are hoping to free up equity, that illiquidity can be a real issue.
Tax and diversification
Hunt highlights two further reasons to think carefully before concentrating too heavily on property.
First is diversification. Investing mainly in one or two properties ties a large amount of wealth to a single market and sometimes to a single postcode.
A broad investment portfolio, by contrast, can hold shares in hundreds of companies across many countries and sectors, spreading risk more widely.
Second is tax. Hunt notes that the direction of policy in recent years has not favoured individual property investors.
She lists changes such as the removal of mortgage interest relief for landlords, the end of certain wear and tear allowances, higher stamp duty on second homes and cuts to capital gains tax allowances.
By contrast, pensions and ISAs still benefit from significant tax advantages.
“The Government is so desperate for us to put our money into pensions and investments because it realises how important that is for long term financial wellbeing that it has these incredible tax benefits,” Hunt says.
Growth on investments in ISAs and pensions is generally shielded from tax, and pension contributions can benefit from tax relief.
Property culture in the UK
Hunt also touches on a cultural element. In the UK, she argues, property is unusually dominant in how people think about wealth.
She notes that British adults hold a large share of their assets in property and cash and the smallest proportion, around 8%, in stocks and shares outside pensions.
In the United States, the picture is different. There, households hold roughly a third of their wealth in shares. Talking about how your retirement savings are invested is common.
In the UK, property dominates in the media, from home improvement shows to auction programmes, while discussions about pensions and investment portfolios are often seen as intrusive or dull.
This cultural bias may be one reason many people feel more comfortable buying a property than a global tracker fund, even where the numbers and effort required might favour the latter.
Buy to let is getting more serious
Buy to let, in particular, has changed. The market has professionalised, with more landlords holding properties through limited companies and treating it as a full-scale business rather than a casual sideline.
Higher borrowing costs, more regulation and lower tax reliefs mean entering the market now generally requires more planning, more capital and a greater tolerance for complexity than when “dinner party landlords” were the norm.
For people considering buy to let purely as a long-term investment, that shift raises the question of whether other routes, such as investing via an ISA or pension, may offer a simpler way to grow wealth without the same level of direct involvement in the investment.
Starting early and thinking broadly
Hunt is particularly keen to underline the importance of beginning early, even with small amounts.
Automatic enrolment into workplace pensions is a positive step, but she warns that default contributions alone are unlikely to deliver a “comfortable” retirement for most people.
“So many people think that just because they are auto enrolled into a workplace pension that is going to give them a comfortable retirement.
“The unfortunate truth is that is not the case. We need to be putting in more,” she says.
She encourages younger savers not to focus exclusively on saving for a property deposit. While that is often the immediate goal, building the habit of regular investing alongside it, even if it is as little as £50 a month into a stocks and shares ISA, can make a significant difference over several decades.
So where does that leave property?
All this being said, it’s not right to suggest that property has no place in a long-term financial plan. Instead, it suggests that its role needs to be seen more realistically and as part of a wider set of decisions.
Property can provide stability, remove housing costs in retirement and meet strong emotional and practical needs.
But recent performance data, tax changes, market frictions and cultural bias all point in the same direction: relying on property alone is increasingly unlikely to be the most effective way to build long term wealth.
A more balanced approach, combining homeownership with diversified investments through ISAs and pensions, may offer a more resilient path.
DISCLAIMER
This article is produced for general informational purposes only. It should not be construed as investment, legal, tax, mortgage or other forms of financial advice.
If in any doubt about the themes expressed, consider consulting with a regulated financial professional for your own personal situation.
Past performance is no guarantee of future results. Investments can go down as well as up and you may get back less than you started with.
Investments are speculative and can be affected by volatility. Never invest more than you can afford to lose. For more information visit www.fca.org.uk/investsmart
