For most people, property has often proved a better investment than shares. But why is it and which should you choose?
Property is usually a long-term investment, with buyers committing to a mortgage for decades. However, when someone invests in shares, they’re asking what will go up in price next week. Even when considering the long-term market, investors can panic at the first sign of a problem.
Not only are we more committed to the homes we buy, we’re more fussy about them too. It’s easy for an investor to pour thousands of pounds into a firm’s shares simply because they read an article about it somewhere. But when purchasing a property, buyers will often attend dozens of viewings and spend hours researching online also.
Furthermore, we have more natural knowledge of property; some of our earliest memories are of our homes. It’s normal to understand property by your teenage years, but not so much business.
Additionally, a bank will lend you £200,000 to buy a home at an interest rate that’s not too much higher than inflation. But getting the same deal from a bank for a high-yield share is not so easy.
As there are no margin calls on mortgages, it is believed that they are the best way of borrowing to invest. This means that if you purchase a property with a 20% deposit and the price drops by 20%, the lender will not ask you to find another £50,000. Contrastingly, spreadbetting accounts will require further funds if this occurs.
Although selling a property when you decide to move on can be time consuming and costly, living in the home or operating it as a landlord can add value over time – the maintenance might seem a pain, but it can give you a higher selling price.
Asset wise, property prices have the ability to rise in line with inflation. Shares can also respond to inflation, but it is not so smooth. Whichever way you decide to go, remember that cash in the bank does not react to an inflationary environment.