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Property has long been regarded as an attractive means of building long-term wealth. Many investors value the tangible nature of residential property and the perception that it offers greater stability than financial markets.
However, when comparing long-term investment outcomes, the evidence suggests the difference between property and equities is less pronounced than many might expect. Furthermore, the increasing costs of owning and managing investment property mean that capital growth alone provides only part of the overall picture.
Long-term returns have been remarkably similar
When adjusted for inflation, UK house price growth and returns from the FTSE All-Share Index were broadly comparable between 1983 and 2025.Although equity markets experienced significantly greater short-term volatility during this period, long-term investors were rewarded with returns that were similar to those achieved through residential property. More recent performance, however, highlights a divergence. House price growth has largely plateaued, while equities have continued to generate positive returns. Naturally, one year’s performance should not determine a long-term investment strategy. Investment decisions should always be made with a long-term horizon, and it is entirely possible that property prices could once again keep pace with equity markets over the coming decades. Nevertheless, when assessing the relative merits of different asset classes, investors should consider not only expected capital appreciation but also the ongoing costs associated with ownership.
The total cost of ownership matters
The overall return generated by any investment is influenced by more than changes in its capital value.
Whether investing through pensions, collective investments or discretionary portfolios, investors incur costs such as management charges, administration fees and taxation. These costs should always be considered alongside expected returns.
Three recent developments are particularly relevant.
1.Regulatory change is increasing the cost of being a landlord
The Renters’ Rights Act, the majority of which came into force on 1 May 2026, introduced significant reforms to the private rented sector.
Among the changes most likely to affect investment returns are restrictions on rental increases, which are generally limited to once each year, together with the prohibition on rental bidding above the advertised price. In addition, the tighter possession rules increase the regulatory burden on landlords, increasing the potential cost and complexity. While these reforms provide greater certainty for tenants, they reduce landlords’ flexibility to respond to changing market conditions and may place downward pressure on future rental income.
2.Energy efficiency requirements will require additional investment
Current proposals require all privately rented properties to achieve an Energy Performance Certificate (EPC) rating of C or above by 2030.
Where improvements are necessary, landlords may need to invest up to £10,000 per property to comply with the new standards.
Depending on the property, this could include:
- Upgrading insulation
- Replacing heating systems
- Installing more energy-efficient windows
- Introducing smart energy management systems
For landlords with multiple properties, these requirements could represent a significant capital commitment, reducing overall investment returns
3.The tax position has become less favourable
The tax treatment of residential investment property has become progressively less favourable in recent years. The restriction on mortgage interest tax relief in 2017 fundamentally changed the economics of buy-to-let investment; preventing landlords from deducting all finance costs from rental income before calculating tax.
Subsequently, from April 2025, purchasers of second homes and buy-to-let properties became subject to a higher Stamp Duty Land Tax surcharge, increasing acquisition costs.
In addition, measures announced in the 2025 Autumn Budget mean that, from April 2027, landlords holding property personally will pay higher rates of Income Tax on rental income:
- 22% for basic-rate taxpayers
- 42% for higher-rate taxpayers
- 47% for additional-rate taxpayers
While relatively modest in isolation, these increases reduce net rental income over time.
Capital Gains Tax has also become more significant following the reduction in the Annual Exempt Amount from £12,300 in 2022/23 to £3,000 from 2024/25 onwards, increasing the proportion of gains potentially subject to tax when an investment property is sold.
Equities also carry investment risk
This is not to suggest that equities represent a risk-free alternative.
Equity markets have experienced periods of significant volatility throughout history, including during the Covid-19 pandemic and more recent geopolitical events. Past performance is not a reliable guide to future returns, and investors should expect periods of market decline as well as growth.
Nevertheless, the long-term performance of equity markets demonstrates the importance of maintaining a disciplined investment approach and remaining focused on long-term objectives rather than short-term fluctuations. Any decision to invest should be considered in the context of an individual’s objectives, attitude to risk and capacity for loss.
A balanced assessment is essential
Residential property continues to have a role within many investors’ overall wealth strategy. However, when evaluating future investment opportunities, it is important to consider the total cost of ownership rather than focusing solely on capital appreciation.
Increasing regulatory obligations, higher taxation and ongoing compliance costs have altered the investment landscape for buy-to-let property and should form part of any objective comparison with alternative asset classes.
At IPS Capital, our Wealth Planners and Investment Managers provide personalised advice based on your individual circumstances and long-term objectives.
This is issued by IPS Capital LLP of 4 Eastcheap, London EC3M 1AE; a limited Liability Partnership registered in England OC328405 and authorised and regulated by the Financial Conduct Authority. It is issued in the UK only. This publication does not constitute advice and you should not make any investment decision based on it. The information contained herein is correct to the best of our knowledge and we may not be held liable for any errors or omissions. This information is based on current information in respect of UK Pensions. IPS Capital LLP does not offer tax advice and you should seek professional tax advice for your own circumstances.
