Every barbecue has one. The man with three buy-to-lets who tells you property never goes down, and the man with a stocks and shares ISA who tells you landlords are mugs. They both sound sure of themselves. They can’t both be right. Or can they?
If you’re in your 50s with a lump sum, an inheritance or a maturing fixed-rate bond, this is a fair question to ask: put £100,000 into the stock market, or into bricks and mortar, and come back in 20 years. Which pile is bigger? The honest answer is more interesting than either barbecue bore will admit.
Is compound interest really better than house price growth?
First, let’s get rid of a myth. People talk as if shares compound and houses simply go up. In fact both compound. A house that rises 3% a year adds 3% to last year’s higher price, just like a fund. What actually separates the two is the growth rate, the borrowing, the running costs and the tax.
Compounding is powerful even at modest rates. Take £100,000 and leave it alone for 20 years:
At 3% a year it becomes about £180,600. At 5% it becomes about £265,300. At 7% it becomes about £387,000.
Those rates are examples, not forecasts. Nobody knows what shares or houses will do over the next 20 years. What the sums show is that small differences in the yearly rate make a huge difference by the end. Going from 5% to 7% sounds trivial. Over two decades it’s worth more than £120,000.
Regular saving works the same way. £500 a month for 20 years is £120,000 of your own money. If it grew at 5% a year it would be worth roughly £203,000.
The weapon property has that shares don’t
House prices on their own rarely beat shares over long periods. Property’s secret weapon is the mortgage. Most people don’t buy a £300,000 flat with £300,000. They put down a deposit and borrow the rest, so every percentage point of growth applies to the whole property, not just their stake.
For context, HM Land Registry’s UK House Price Index puts the average UK home at a little over £270,000. Here’s a round-number buy-to-let example: a £300,000 property bought with a 25% deposit of £75,000 and a £225,000 interest-only mortgage.
Say prices grow 3% a year. After 20 years the property is worth about £541,800. Pay off the £225,000 loan and you’re left with roughly £316,800 of equity from a £75,000 deposit. That’s leverage, and it’s why property people look so smug.
Now let’s start counting the costs.
How much does it actually cost to own a buy-to-let?
Start with stamp duty. In England and Northern Ireland, from 1 April 2025, an additional property attracts a 5% surcharge on top of the standard rates. On a £300,000 purchase that comes to about £20,000. Scotland charges Land and Buildings Transaction Tax and Wales charges Land Transaction Tax, each with its own rates and second-home surcharges, so the figure there will be different.
Then there’s the mortgage. At 5% interest, £225,000 interest-only costs £11,250 a year. Over 20 years that’s £225,000 in interest, the size of the loan itself. The rent has to cover that, plus letting agent fees, repairs, insurance, safety certificates and the months when the property sits empty. Rental profit is taxed as income. Since 2020, landlords can’t deduct mortgage interest from rental income; they get a basic-rate 20% tax credit instead. That hurts higher-rate taxpayers most.
Finally, when you sell, there’s Capital Gains Tax. The rates on residential property are 18% for basic-rate taxpayers and 24% for higher-rate taxpayers, and the annual exempt amount is just £3,000. In our example the gain is about £541,800, minus the £300,000 price and the £20,000 stamp duty. For a higher-rate taxpayer that means a bill of roughly £52,500, before estate agent and legal fees on the sale trim it a little. You also have to report and pay it to HMRC within 60 days of completion.
That leaves our landlord with around £264,000, give or take whatever the rent made or cost over 20 years.
Property wins on borrowed money. Shares win on simplicity. The sums are closer than either side likes to admit.
So what would the same money do in an ISA?
To make it a fair fight, the share investor gets the same starting money: the £75,000 deposit plus the £20,000 the landlord spent on stamp duty, so £95,000. In a stocks and shares ISA, growth and income are free of Income Tax and Capital Gains Tax. The annual allowance is £20,000, so you would need to phase it in over five tax years, or use a spouse’s allowance too.
At 5% a year, £95,000 grows to about £252,000. At 7% it reaches about £367,600. No tenants, no boiler, no CGT, no 60-day deadline. You pay fund and platform charges instead, which over 20 years are far from trivial.
Look at what that means. On these assumptions, a landlord with 3% house price growth and a share investor at 5% end up within touching distance of each other. Bump house prices to 4% a year and the landlord’s pot after CGT rises to about £352,000. Bump shares to 7% and the ISA pulls ahead. Change the interest rate, the rent or your tax band and the answer moves again.
There are differences that don’t show up in the totals. Shares can fall 30% in a bad year, and you’ll see it on your phone. Property falls more quietly, but you can’t sell a bathroom to pay a bill. A buy-to-let puts a big chunk of your wealth into one asset on one street, financed with debt. A global fund spreads it across thousands of companies. Then there’s your time: a fund doesn’t ring you on Christmas Eve about a leak.
What about the house you live in?
Your own home is a different animal. Private Residence Relief usually means no Capital Gains Tax when you sell your main home, and you pay no surcharge when you buy it. But you also have to live somewhere. Gains on your home only become spendable if you downsize, move somewhere cheaper or release equity. Each of those has its own costs and trade-offs.
For most readers in their late 40s and 50s, the real question isn’t shares or property. It’s whether you already have enough of your wealth in bricks. If your home is worth £400,000 and your pension and ISAs together are £150,000, you’re already heavily in property. Adding a buy-to-let doubles down on the same bet.
If you’re weighing up a big move, such as selling shares to buy a flat, cashing in pension money, or remortgaging to invest, get help first. MoneyHelper is free, Pension Wise is free if you’re 50 or over and have a defined contribution pension, and an FCA-regulated financial adviser can run the numbers for your own tax position.
In short
Over 20 years, neither shares nor property is guaranteed to win. Property’s edge comes from borrowing, while shares win on lower costs, tax-free growth in an ISA and far less hassle. Once you count stamp duty, mortgage interest, running costs and Capital Gains Tax, the two often end up surprisingly close, and small changes in growth rates decide the winner. Which one suits you depends on how much risk, debt and work you’re willing to take on, and how much of your wealth is already tied up in your home.
Sources
Midcent Money
Andrew Ingram writes about money for men 45 and over – the years when retirement starts to feel real and the decisions get bigger. Pensions and retirement planning, investing, savings, mortgages and tax: what changed, what it means for your plans and what's worth doing about it. No hype, nothing to sell, and a clear steer on when it pays to get personal advice.
One of Midcent's writers. Spotted something? Write to andrew@midcent.uk.
