PROPERTY INVESTMENT OR THE STOCK MARKET?
To obtain an accurate picture of house price performance versus the stock market, it is necessary to look over a longer period such as the last 35 years. In the UK house prices have increased 11% per year on average, whereas the stock market has produced around 13% growth – at first sight this suggests that the stock market would be a better place to put your money.
Bear in mind that many people borrow money to purchase property and that the interest payable on this loan is usually covered by the rent charged to a tenant on the property. Therefore, property growth should perhaps be considered in relation to the deposit paid for the property rather than assuming the property has no mortgage.
So let’s assume the next 10 years are much more modest in growth and compare £20,000 invested in the stock market earning 5% pa vs £20,000 invested as a 10% deposit on a property that only grows at 2.5% pa and the rent covers the mortgage.
ASSET CLASS Assumed Return %pa Capital Growth after 10 years
STOCK MARKET 20,000 5.0 12,578
PROPERTY 20,000 (10% deposit on a 200,000 Property) 2.5 56,017
The figures speak for themselves – by gearing your investment with borrowing you can make your investment work much harder for you.
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