£60bn giant says property is dead: We fact-check

0:00Hi listeners, it's Sam here from Property Hub Invest. We love sharing our take on the market with you each week, but we're just as curious to hear about yours. What are you seeing out there? What's working for you right now? And what's got you worried? We've put together a quick survey to find out. It'll only take a couple of minutes, but it will generally help shape what we talk about on future episodes. Head to propertyhub.net forward slash survey to have your say. Hey everyone, it's Robby here with Rob D and you are listening to the Property Podcast. Now, a major wealth firm has declared property investment officially dead.

0:39They've analysed the market and their verdict is buy to let is a busted flush. We're going to look at that report. If it's true, will this be the last ever episode of the Property Podcast?

0:55Welcome to the Property Podcast. Thank you for joining us. In case you don't know, we run a business that buys more than£100 million worth of property for our investors every year. You can find out more about that at propertyhub.net slash invest. But should we even be doing that? Are these clients and all other property investors just signing up for a world of financial pain? Well, in this episode, we'll find out. It's time for our news story of the week now and our news comes courtesy of The Times. And the headline reads, Rob, and this is a bit worrying the headline, landlords could face national insurance on rental income in budget.

1:25tell me this isn't true? Well, it's probably not. As I wrote in Property Pulse last week, what they appear to be doing ahead of the budget, which is still miles off, by the way, we're going to hear so much more of this before it actually happens. What they appear to be doing is just testing, leaking every possible thing that they have as an option to do to see which is going to be the least unpopular. Remember, they've already boxed themselves into a corner by saying they basically can't touch any of the taxes that really make a difference. So they're looking at all the little extras that they could do on the side to raise some money from somewhere.

1:56And obviously, where does your mind go? Thinking, oh, who can I get some extra money from without making too many enemies? Landlords. Landlords is always the answer. So the alleged proposal is, as you've said, is they're going to start making you pay national insurance on rental income, which they say could raise£2 billion. Now, if that does happen, Rob, of course, that is another massive reason to invest through a limited company, because that won't affect the company, and it won't affect the dividends that you take out of it. But as we've covered in the past, the vast majority of landlords for historical reasons still hold properties individual listeners to this podcast are kind of an anomaly in that respect so if this does happen loads and loads of individuals would be affected it'll make the traditional way of being a landlord even less profitable and i imagine would cause even more landlords to sell up but there is a whole series of ifs because we're firmly in the realms of rumor at the moment thankfully so let's hope it just stays as a rumor but it is more punishment for legacy landlords those who've been in the market for a long time as you rightly point out rob doesn't really impact people who are coming into the market now at least if they go the limited company route i've not run the numbers all i've done is read the headline but just thinking this through i can't imagine this would actually raise a lot of tax because national insurance isn't a bonanza tax anyway it's just a small amount for everyone and there's not that many landlords and there's enough but there's not something going to make a huge difference.

3:18It just seems like one of these taxes that is a hassle to be implemented and doesn't actually make that much for the government to then go and spend in other areas. So hopefully they'll also think that through and put this one to bed. But if you think that was the biggest news story of the week, wait until you hear this. We are recruiting again and we're not just recruiting one role again. The expansion is real and Rob we've got some incredibly exciting roles right now. Let's not go through them all. If you want to have a look at what roles we have in the business, go to propertyhub.net forward slash jobs.

3:52But let's pick out one that you're particularly excited about at the moment. Well, it won't surprise you to know, Rob, the one I'm particularly excited about involves AI. If you've listened to the show for any length of time, you know that we are a bit obsessed. And we are looking for someone to come in and work with us full time on embedding automation and AI within our business. I'm a bit jealous of whoever gets to come in and do this because it's an amazing role. So if you are an experienced leader of tech teams, you love leading people to get exciting things built. And you're also as obsessed with all the latest AI tools as we are.

4:23You spend your weekends fiddling around and building cool stuff with Cursor and N8N and things like that. You are the person who we want in our business. And you can have a lot of fun and a lot of impact coming in and unlocking big growth opportunities within the business. Like Rob said, we are on a growth spurt at the moment. So to find out more about that and the other very exciting roles that we've got at the moment, there's loads on there. Go to propertyhub.net slash jobs. So at the top of the show, I said this could be our last ever podcast. Let us see, because this week we are going to look at a report from Rathbones, a huge wealth management company.

4:55And I mean huge, billions of pounds huge. And they have analysed the UK property market. So when an organisation of this size and resource look at the UK property market, we want to hear what they've got to say. But the news isn't good. They are saying that buy to let is a busted flush, that basically the party's over and it doesn't work as an investment opportunity. They've looked at research since 2016 and said that UK property has barely kept up with inflation, while stocks have left it in the dust, stocks that they invest in. They point out that London's been even worse, and if you'd invested there in the last eight years, you'd be losing money in real terms.

5:33It's not a great read if you're a property investor, let's put it that way. but we were brave and we read it we read the lot and we wanted to offer some balance this is not a he said she said type of podcast this is backed up with information they've put information out there but we just wanted to put some information out as well and then at the end let ourselves and you decide who's right here or which parts are right maybe not all of one side is correct here And there may be some bits that we actually agree with. You might be surprised. So let's go through this, Rob, because I actually do think it was a really interesting report.

6:10And I think it's important that somebody fax checks this stuff, because when it comes from a prestigious establishment like Rathbones, you think that's got to be true. So let's go through some of their main points. Let's do that. So their first point is that property has significantly underperformed stocks since 2016. so UK property by their numbers has grown by 3.7 per year since 2016 which has barely kept up with inflation whereas if you just invested in stocks these are a mix of 25 % UK stocks 75 % global stocks they said that that would have delivered far stronger returns in fact they said if you invested 100 pounds in 2016 in property that would now be worth 134 pounds but in stocks it would be worth 174 pounds so by those numbers Rob the stock market has indeed left property in the dust and it's worse than that.

6:57Not only have you made an investment that has performed far worse, you've taken on so much more hassle. You've had to go through all the research and all the pain of transaction. You have to listen to bloody podcasts like this to keep up with what's going on. And you're taking on far more risk because if you had just one property, that's 100 % of your income so you don't have the diversification that you get from stocks. I feel like I'm making their argument for them now, Rob. I'm adding in points that they weren't even making so I should stop. This sounds pretty damning. So next week, make sure you join us for the Stocks Podcast.

7:25We'll see you then. Bye-bye. No, we're not quite done because that's all true, Rob. Nothing you've said is a lie. They've not manipulated any data, but they've presented select data. So first of all, they've picked the worst eight-year period in property in recent history. That is true. From 2016 till now, it's been terrible for property investment. Even though property has grown by nearly 4 % on average each year since 2016, that's pretty poor by long-term standards. And that's the point, right? It's about the long-term property. We recommend looking at property investment for 10 years plus, going in for the long-term.

8:06We're in the longest ever cycle that it's taken for UK property prices to double. So of course, if you compare stocks to property during this period, it's going to look bad. But even in arguably the worst ever period for property, it still could be fantastic because what they have completely ignored and something that we passionately talk about over and over again on this podcast is the power of leverage now for the one percent of people listening to this going you can leverage stocks most people don't and shouldn't and most people don't even know how to it's just something that the vast majority of people do not get involved with so let's park that the vast vast majority of people do not use leverage when it comes to stocks but we recommend the majority of people should look at leverage with property and that's when the magic happens because even if we take this period which has been really poor by historical standards really really poor if you'd use the standard 25 deposit, that return of 3.7 % then becomes 14.8 % on your invested capital.

9:19And remember, that's annually, not in total. That then is just phenomenal numbers. And that's what leverage does. It takes an underperforming asset like property and turns it into something truly special. Imagine what would happen when we have some good years. We don't need to. The report is picking on the badgers. But even with the badgers, if you use leverage, then it's incredible. We've gone as far to say, Rob, that property at the moment in this current market really doesn't work without leverage. We've said that, and this demonstrates that it's true. That's right. Thanks to leverage, property has still come out ahead, even though this relatively terrible phase for property.

9:57Property and stocks perform roundabout the same. Maybe stocks do a little bit better, but then you add leverage on top and boom, property far outperforms. So the fact that property has underperformed so much for all this time, it suggests to me that in the future you're going to get reversion to the mean, and so that means property is more likely to outperform in the future. But that's speculating about the future. We don't know. What you said quite correctly, Rob, is that even over these past eight, nine years, the period that they are covering, you still would have done better in property thanks to leverage.

10:22Okay, so let's move on to point two that they raised. London property has been particularly poor. So their argument is London property has underperformed inflation by 2.2 % annually, with just 1.3 % growth per year since 2016. This is especially stark given London was previously the star performer during the Golden Age. Rob, what's the truth? That is the truth. Definitely can't argue with that. This is something that we've been saying for a long, long time. And the fact that we've been saying it for a long time is kind of my rebuttal to this, which is that, yeah, it's true, but this wasn't hard to see coming.

10:59You don't need to have been making investments in London over this time because it was so obvious that it was going to underperform. Part of it is that reversion to the mean point that I was talking about a minute ago. London, after the last crash, bounced back so quickly and so strongly. It surged way ahead of the rest of the country, kind of got ahead of itself. The normal ratio between London and everywhere else blew out. Therefore, obviously, it was going to hit a ceiling and everywhere else was going to perform better. We've been guiding people away from London since 2015, probably earlier than that.

11:28A long, long time. We've been talking about places like Manchester for at least that long as well, which I think has been the best performer over this period. And we've not done anything particularly clever to do that, have we? You look at affordability ratios, you look at rental yields, look at supply and demand. You didn't need a giant research department to see this coming. I think their point is absolutely correct. But with a little bit of research and market knowledge, you didn't need to be affected by it. Their third point, Rob, is a really simple one, that the golden age is over for property.

11:55So their argument is that the golden age of property from 1980 to 2016 is when UK property rose annually at 6.7 % and even 8.5 % in London, way ahead of inflation. And that's not taken into account leverage. The numbers would have been even more spectacular. And the factors that drove this boom will not be repeated. They said there was the massive decline in interest rates from the 80s highs, decades of very low numbers of new homes coming onto the market being built, and in the past, favourable government policy existed. They're saying that all of that is gone and it won't return. Again, I'd say that that's largely true.

12:36That was an anomalous period, especially if you think about the early 2000s, the run-up to the financial crash. Everything that was happening then was mental. If you think about what was happening with mortgage lending as just one example, that was not normal. loads of those things they're right we're not going to see anything like that again and i say that we're still living through the hangover of that probably the reason why property has performed so poorly since they say 2016 i'd say actually a bit earlier than that is because property got so ahead of itself in that period up to 2008 you can't just have property running ahead of everything else forever it's going to get to a point where it doesn't work so it needed to have this period where it's really cooled down to give everything else a chance to catch up so i think that's all right but i'd come back to the point you made earlier rob that you don't need that and as we've said on the podcast in the past you don't even necessarily want that no it's not as exciting to say this but the truth the market you want to operate in is a steady one with steady growth year in year out yes a boom is exciting especially if you've built your portfolio up you know and you're sitting on it and then you see a boom lovely i get it but then at some point you have to deal with a bust.

13:42That's how it works. But steady growth, you're highly unlikely to see that bust happen because you haven't had the boom. And okay, 6 % to 8 % annual growth might sound attractive. But you know what? Even with modest growth, say 4%, that equates to a 16 % return with leverage. So you don't need the market to be spectacular, to do incredibly well. Remember, we haven't even talked about rent at any point here. This is all excluding rent, these returns that we're talking about. You don't need the market to be rampant to do spectacularly well over the long term with wealth creation in property. And it's easier, it's far easier to transact in this type of market.

14:25It really is. So, yes, a boom is exciting. It's great for content. Everyone gets excited. The numbers will double on the podcast from our already fortunate high base. and that might be great for our egos but besides that for the overall well-being of our nation actually just steady growth is absolutely fine so it might not be sexy and their point might be true but we're okay with that so rob what's point four well point four is one that they are not unique in making they are saying that houses have become fundamentally unaffordable so they're saying that the house prices from 1910 all the way up to the 1990s were around four times average earnings But since 2000, they've now reached a point where they are eight times average earnings.

15:08So property is fundamentally unaffordable for typical buyers, and these levels cannot be sustained. What would you say to that, Rob? Basically, the argument seems to be that some kind of crash or correction is overdue because we're living at this artificially high level that cannot be sustained. It's technically true. The national average numbers are correct what they've said, and affordability has worsened dramatically. but it has been improving over the last couple of years and we're also assuming that four times earnings is that a natural level that we must return to but the way we live today has changed most buyers today are dual income households combining two salaries now that's not to say everybody was living by themselves in the past it was just that them on typically you just see one person bringing an income between 1910 and into the 90s obviously that has been changing over time and that's great but that also should be reflected in this data but i think the other thing that needs to be really reflected in this data or talked about at least is the fact that regionally it's very different so these numbers are massively driven by london and the southeast in a major way so when you actually look the numbers the house prices to income ratios in london are actually double digits over 12 it depends on what data set you look at and what time frames but what it is is double digits it's a huge number but if you look at other areas like liverpool and leeds it's much closer to four percent so in 2023 when we had some data there liverpool was at 4.6 times so very close to that average that they've talked about leeds was 4.2 times again these are what are deemed to be affordable, very affordable levels.

16:53But you have two income earners in those places as well. So in a way, you could say that those places are now underpriced and undervalued. And that's one of the reasons, not the only reason, but that's one of the reasons why they're areas that we pick out. And as we said, the way things are going, that data is improving year on year. So it's not to say it's untrue. It's just that there's more to it than the statement they've made and London we've talked about for many years in this podcast we've already mentioned it a few times in this episode alone is unaffordable and the numbers are bonkers but even London has been improving over the last few years so that's why it's so important to pick the right areas when you invest and it's not the UK is one place as we all know it's a wonderful island made up of lots of different interesting areas and some are better for property investment than others and that's why we talk about it so often on the podcast and that shows you here in the data why it's so important to get it right definitely multiples do vary hugely across the country and even if multiples across the board are higher than they used to be because of how the mortgage market has evolved what's happened with mortgage terms and different products and things like that it doesn't mean it's unaffordable on a month-to-month basis granted people do need bigger deposits now but i think for all the reasons you've said rob plus more the argument that oh house prices have to fall dramatically because we need to get back to where it was in the past i just think it's so simplistic i think the world has changed not saying it's for the better but i'm saying it has changed and look at how these multiples have persisted even after this long term fall in interest rates even now mortgage rates are back up again the multiples aren't dramatically changing so for me this is the weakest of the points that they've made but they do have one final point and rob i think this is one that we're probably not going to be arguing with that much which is that government policy has become hostile and many buy-to-lets are now unviable since the mid-2010s there's been tougher regulation there's been higher taxes and they say that many buy-to-lets are now unviable as businesses because of high rates tough regulation and slowing price growth basically rob the incentive of that rapid price growth isn't there anymore we're having to work harder to get the rental income in and then we're getting hit harder on taxes on that rental income i'd say it's a pretty accurate reflection i say this is wrong i just think the government's misunderstood no sorry i couldn't even hold that one for long no this is absolutely true there's definitely been an attempt by the government to crack down in particular i would say on your amateur landlords people who've just dabble in the market they clearly do not want those people involved in property investment and you can possibly understand why because you're dealing with people's homes here and that's one of the big differences between stocks and property right you buy a stock you know emotionally there's not a lot going on there but with property you might not be emotionally involved but what you are doing is providing a home to somebody and they will be emotionally involved and that is one of the reasons why not the only reason but one of the reasons why the government has cracked down on property but let's face it it's gone beyond that with taxes and regulation and it's arguably gone too far.

20:02The government would say no we haven't and there's more work to do possibly. Let's hope that's not true but there's been a dramatic shift since we started this podcast and it's really been interesting and painful at times to witness this change over the last decade plus where property investment has been targeted. You still can do incredibly well. That's the most important point here. It's now something you do professionally. It's not something that you do as a side project that you do not give much attention to. You have to treat this investment in a professional manner. You have to set yourself up from a tax point of view in a professional manner.

20:40You need to work with professionals and you need to act like a professional. That is the reality now of how you operate in buy to let. But if you operate that way, and many would argue who don't invest in property that we should operate in that way, but if you do operate that way, then all those wonderful returns and gains and benefits that we talk about from property exist to you. And you know what? Maybe if you are going to become fantastically wealthy over the long term through property, if you persist with it and keep on investing then maybe that's only fair it shouldn't be easy if it was easy everybody would do it and everybody at the time did do it and then some people did benefit with doing very little work and then lots of people lost money when the market crashed because everyone was doing it now if you're into property investment you're serious about it you're listening to podcasts by the way side note rob it has been very good for our list of the numbers because you can't wing this anymore you need to learn you need to know what you're doing so we've progressively seen our numbers grow over the years because the government keeps meddling and people need information and they want to treat it in a way that they are professionals and that's great so in summary i think this point is absolutely true the market has changed some may argue for the better but now this is a professional game if you want to make the big long-term wealth that property can provide you just have to go in it in a different way i think that's right and i think something that's very important for people to take away from this is that you need to be mindful of where information is coming from and how it's packaged and the motivations behind it but also who that information is targeted at because if you are the typical client of Rathbones and you're thinking well you know I've got these savings they're not doing much for me I know I should be investing should I go and buy that house I've seen for sale down the street and turn it into a buy-to-let or should I start investing in the stock market 20 years ago you probably would have gone for the buy-to-let today you almost certainly shouldn't be in that situation for all the reasons we've talked about and that is something the government have been trying to make happen and have pretty much succeeded at but as we've covered and as you've just said if you take a professional approach to property and you go into it seriously you go into it professionally and you go into it with ambitions of scale so you're not just going to be buying one for a bit of side income then you absolutely can't still make money from property so they declare property investment dead i think it's fair to declare the old way of property investment dead the dabbling on the side approach to property but can you make money from property the way that we talk about on this podcast?

23:03Yes, you absolutely can. And a danger that we see. And you see it again, we see all these headlines about landlords selling up. You see people going, oh no, some landlords are selling, therefore I shouldn't be starting out in property now. No, absolutely not. People who are doing things the old way, which doesn't work anymore, are selling up and that's fine. But that doesn't affect you in the slightest. Obviously, no investment is perfect. Obviously, there are risks. And if you're getting into property, still thinking like it's the early 2000s and you can just make a load of money without doing any work, then you are going to be disappointed.

23:29But over the long term, taking it seriously, can you still make money from property? Yeah, you can make a lot of money from property. It's time for Hub Extra and our Hub Extra this week is WhatsApp. I probably should not run out of ideas after over 600 episodes. This is a real Hub Extra because WhatsApp for me and for Rob, and I'm sure for many of you, has really changed and it's gone from a messaging app to almost the second inbox. It resembles more of an email inbox now than what it used to be. And in some ways, that's good. There's loads of interesting groups out there. I'm a part of many of them.

24:08But what it also brings is a bit of overwhelm. And the reason why this is a Hub Extra is that Rob and I were chatting before the podcast started about how it would be great if there was files or folders for WhatsApp. And there are lists, but they're not that great. If you're not familiar with that, you can quick search within the app and you'll find them. Lists are okay. But what transpired is that we both have workarounds. The ideal world would be folders, like you have in email. And I'm sure that will come one day. But until it does, how do you cope with the WhatsApp overwhelm? Rob, do you want to share your tips first?

24:45Yeah, my way is very simple. Basically, all of my groups I have permanently muted. From the amount of notifications I see pinging around me when I'm out with people, I assume not everyone knows that you can mute notifications but you can you can mute them for individual chats and for groups so whenever I join a group I immediately mute it and you can choose whether to mute it for eight hours or a week or always I just choose always what that means is for my groups I see the unread message that will counter thing so I can see when there are messages and I don't forget that the groups even exist but I'm not getting pinged about them all the time so effectively all my individual chats I'll read and reply to the groups will kind of just gradually drop down the list until I feel like I want to have a catch-up and I thought this is a great system but until we were talking before rob and you told me about your method which i now grudgingly admit might actually be better maybe it's super simple again it's a workaround to something that should exist but i used archive so when you archive individuals or a group they go into a little bucket at the top of your screen you'll see it so you have your search at the top and then you have lists if you have them and then it says archive and then you have your chats so what i've done is basically put everybody in an archive who aren't my closest contacts so don't worry rob you're in my closest contacts you're still in the tier a group but everybody else who's not in the tier a group goes into archive so that could be acquaintances there's a lot of groups in there the majority of my groups in there and i just leave them there and i don't see that little number that little distracting number that makes you want to go and click something in your head says go and resolve that go and get that number away so when i go into archive i can see groups that i've got 28 chats that have been unread 180 like the list goes on there's loads loads in there and it doesn't bother me what i will do is when i have time i'll go in there possibly when i'm commuting or similar i'll just go in and treat it like an inbox and go through see if there's anything interesting in there and then just go back to the main screen and what's app once I'm done.

26:49So that means I see what's important to me, but I'm not distracted by the endless messages that I get elsewhere. And that's how I currently work with it. But Mark, if you're listening, please create folders. It'd be really, really useful. Okay, well, that's all done for this week. And thanks to the conclusion that we reached, we will be back for next week with the Property Podcast. We're not going to have to pivot to some other kind of investment. So we will be back to do it all again. And remember, every Friday morning, we send a free email that rounds up all the property news you need to know about.

27:19So if you haven't already, make sure you signed up to that at propertyhub.net slash pulse. Thanks for listening. Have a great week and we'll see you soon. Bye-bye. Bye-bye. Hi listeners, it's Sam here from Property Hub Invest. We love sharing our take on the market with you each week, but we're just as curious to hear about yours. What are you seeing out there? What's working for you right now? And what's got you worried? We've put together a quick survey to find out. It'll only take a couple of minutes but it will generally help shape what we talk about on future episodes. Head to propertyhub.net forward slash survey to have your say.