Safe as Houses? The UK buy-to-let market

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What’s your biggest financial asset? For most people, it’s their home.

In fact more than 2.6 million Britons have doubled down on property and become buy-to-let landlords as a way of funding their retirement. 

In recent decades – it’s been a great investment. In fact, UK residential property has outperformed UK equities since 1990. House prices have risen about 5% per annum for 30 years and investors received another 5% or so in rental yield. 9-10% total return is very nice indeed [1].  In London the returns have been far greater. Over the same period, the FTSE All-Share Total Return index has returned just over 8% [2].  

The advantages of investing in property are well known: it’s easy to understand, tangible and, as a real asset, it has an element of inflation protection. Investors can also add value themselves in a way they cannot with a public equity, earn a monthly income similar to an annuity, and cash in at any time. Lastly, but most significantly, there is access to debt – a mortgage for an 80% loan to value will have magnified investment returns dramatically. Access to an 80% loan on a discretionary investment portfolio, may not be so readily available. 

Yet the UK’s buy-to-let market faces a period of deep uncertainty as the economic effects of coronavirus (COVID-19) play out over the coming months. In recent years, property investors have seen their returns squeezed by progressive government taxes, tighter regulations in favour of tenants and stricter borrowing rules and the number of landlords in the private rental sector has fallen to a seven-year low [3]. 

Many now expect to see downward pressure on rents and a slowdown in transaction volumes; with holiday bookings drying up, AirBnB landlords are apparently joining the long-term rental market, boosting supply, while financial pressures are expected to increase as government furlough schemes wind down, raising the risk of redundancies.

But others are more sanguine, noting how the partial relaxation of restrictions in May sparked 16% month-on-month rebound in sales [4] and a surge in demand for rental homes on property websites [5]. More recently, the Chancellor’s summer statement outlined a range of measures designed to retain jobs, create employment and kickstart the economy, including specific relief aimed at reinvigorating the property market.

For those faced with the option of purchasing a buy-to-let property, or investing in financial assets via a Self-Invested Pension Plan (SIPP) or an Individual Savings Account (ISA), what key factors should investors be considering in today’s market environment? 


Property is a directly held, single asset class which leads to the problem of insufficient diversification: buy-to-let properties are often located near the owner’s primary residence and due to high prices investors often end up with just one or two properties. 

By contrast, there are numerous ways to get indirect and diversified exposure within the UK residential and commercial property markets via financial assets. Investors can purchase individual shares in housebuilders, materials and construction firms, property development companies as well as property-related companies such as property portals and estate agents. Other variations such as real estate investment trusts (REITs) offer the flexibility to access to a portfolio of underlying properties, across different property types and locations, with the prospect for both capital gains and income. 

Investing via a SIPP or ISA also provides the opportunity diversify the investment over various asset classes, such as government or corporate bonds and commodities such as gold, as well as across geographies. Given the uncertain economic impact of COVID-19 on the UK economy as well as the longer-term ramifications of Brexit, a multi-asset approach can offer more stable returns and lower risk.


Related to concerns around the lack of diversification is the fact that property is very illiquid compared to most financial assets. Liquidity refers to the ‘the ease and certainty with which an asset can be converted to cash at, or close to, its market value’ [6].  It can take considerable time, effort and expense to sell a house. The average UK property takes 114 days to sell [7],  yet it may be difficult to sell at all in a market downturn. A lack of homogeneity also makes comparing prices difficult. As a result, investors may be forced to accept a lower offer on a property in order to free up cash. 

Moreover, because the significant capital outlay required to purchase a property often requires access to credit, tightening lending conditions may negatively impact transaction volumes and therefore prices. Recent data shows mortgage approvals are 86% lower compared to this time last year [8] and residential sales were down 50% year-on-year in May [9].  In acknowledging the role of the housing market in supporting the wider economy, a key measure announced in the Chancellor’s summer statement was to raise the stamp duty threshold from £125,000 to £500,000 until 31 March 2021.This expected to put buyers in a better position to qualify for a mortgage as the temporary reduction in stamp duty allows them to wield a larger deposit, but it remains to be seen whether banks will be willing to extend loans given the uncertain outlook for the UK economy. 

The purchase and sale of any asset requires a willing seller or buyer, but the size of the UK stock market means most financial assets such as shares, bonds and funds held in a SIPP or ISA can be bought and sold at the touch of a button and with minimal impact to the price, and assets such as shares take just two working days to settle.


The stamp duty payable on share purchases is 0.5%, compared with much higher tiered rates for property.  

Significantly, the 3 per cent surcharge remains in place, however the stamp duty holiday announced in the Chancellor’s summer statement has been extended to buy-to-let investors. 

According to Hamptons International, while only 3 per cent of investors purchase properties over £500,000, investors in London and the South East stand to gain the most from the changes, where one-in-five landlords spend over £500,000. As a result, the average stamp duty bill for an investor in London will fall by £7,240, or 26% in London, compared to an expected saving of £1,840, or 22% in England [10]. 

Finally, both property and financial assets such as shares are subject to income and capital gains tax, but a significant difference is the tax efficiency which investors can achieve by purchasing shares in a SIPP or ISA, which provide shelter from both of these taxes. 

What does this all mean? 

For some, owning property has been viewed as a “safe as houses” way of saving for retirement, combining Britain’s love-affair with home ownership with the income and capital gains promise of buy-to-let investing. 

The temporary stamp duty holiday is likely to improve expectations for the UK property market over the near term. But the longer-term path is less straight forward and will ultimately depend on the speed and magnitude of the economic recovery, which will in turn influence both mortgage availability and consumer confidence. 

Importantly, in today’s market environment, the uncertainty brought about by COVID-19 in terms of both the economic recovery and the potential change in consumer behaviour (another lockdown in an inner-city apartment?) highlight the risks of diversification and liquidity factors when it comes to investing in property. Perhaps houses should not be viewed as pensions or investments, but as homes. We should heed the standard disclaimer, past performance is no guarantee of future results.

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Or alternatively get in touch with Charles Lynne, one of our Investment Directors by calling him on +44 (0)20 7963 8222 or you can email him at

The views expressed in this article are not intended as an offer or solicitation for the purchase or sale of any investment or financial instrument. The information contained in the document is fact based and does not constitute investment research, investment advice or a personal recommendation, and should not be used as the basis for any investment decision. References to specific securities should not be construed as a recommendation to buy or sell these securities. This document reflects Ruffer’s opinions at the date of publication only, and the opinions are subject to change without notice.

Information contained in this document has been compiled from sources believed to be reliable but it has not been independently verified; no representation is made as to its accuracy or completeness, no reliance should be placed on it and no liability is accepted for any loss arising from reliance on it. Nothing herein excludes or restricts any duty or liability to a customer, which Ruffer has under the Financial Services and Markets Act 2000 or under the rules of the Financial Conduct Authority.

© Ruffer LLP 2020 Ruffer LLP is a limited liability partnership, registered in England with registration number OC305288. The firm’s principal place of business and registered office is 80 Victoria Street, London SW1E 5JL. Ruffer LLP is authorised and regulated by the Financial Conduct Authority.


[2] Factset, 1 January 1990 – 31 December 2020.


[4] HMRC, UK Property Transactions Statistics, May 2020 Update <>


[6] Andrew Baum and Neil Crosby, Property Investment Appraisal (Third edition, 2008), Blackwell Publishing <>



[9]  HMRC, UK Property Transactions Statistics, May 2020 Update <>


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