Oxford – England’s number 1 for growth potential

Oxford has come first with Cambridge a close second as the city with the best growth potential in the England, according to a report published this week by Arcadis.  The report highlights Oxford as having substantial potential with only Edinburgh rating higher in the UK.

The report states that Oxford and Cambridge are set to be boosted by the Oxford – Milton Keynes – Cambridge corridor.

Arcadis scored cities in several areas including economic performance, branding, housing, quality of life, quality of place, people, growth and infrastructure. These measures were used to identify the attractiveness for future inward overseas investment for social and economic growth. Oxford achieved a total score of 56.1% with Cambridge on 55.8%, with only Edinburgh topping them within the UK with a score of 65.5%. The report looked at a total of 24 UK cities.

Particularly highlighted were collaboration and JV investments as key to fulfilling the potential, especially in housing and infrastructure – which is a key focus of the Oxford-Cambridge Corridor project. The report states that the corridor will improve investment potential by reducing congestion, making housing more affordable and enhancing connectivity. The corridor is expected to play an important part in enhancing future investment, particularly in the following key areas:

·       Housing – to reduce the ratio of average house prices to average earnings;

·       Road congestion – reducing the hours spent per year in traffic jams;

·       Enhanced airport connectivity – to improve journey times to and from key airports

The first two of these has been given top priority in the work of the Oxfordshire Growth Board (consisting of all six Oxfordshire local authorities). The £215 million Housing and Growth Deal between Oxfordshire and the government is expected to be signed off at the end of this month, and will support the opening up of new housing sites around the county and the development of a Local Industrial Strategy for Oxfordshire.

The daily hysterical headline about house prices is misleading

“Oxford house prices are stagnating”  “Oxford homes least affordable in the UK”  “The house price bubble is set to burst”  “Housing Armageddon”.  Just a flavour of the typical narrative of headlines in the printed and digital media daily.  Yes, it seems we Brits are completely obsessed with property, especially when the news is dire!

Given that I am in the business of writing about Oxford’s property market, I thought I’d do a little research to establish some facts and to share them with you.

Hometrack has recently updated its UK Cities house price index with data to December 2017, so it is a good time to take a look and consider the facts.

In general UK citizens feel that they understand property it feels as if it is in our national DNA.  And yet, so many people seem to react to short-term trends, changing their investment decisions because of the headlines they read.

According to Hometrack, an average Oxford property is now worth £425,600, at a time when an average London home is worth £488,300.  So, an average Oxford property is now worth 87% of an average London property.  Only Cambridge gets close to Oxford and London with an average house value of £404,300.  But London prices have been falling so surely Oxford will suffer a similar fate?  Well the truth is no-one knows! Towards the end of last year Oxford properties did dip slightly according to Hometrack, but across the 12 months to December 2017 Land Registry data shows Oxford properties sold for values 6% up on the previous 12 months.  It is also apparent that house prices have performed better than predicted during January.

We are often told that investment in property should be long-term, but does the long-term data support that assertion?  Below is an analysis that shows Oxford house prices (in Green) vs UK house prices (in Brown).

Oxford vs UK House Prices

From the graphic it can be seen that the UK house price index had a positive consistent growth curve over the period from 1998, to 2008 after which it had a steep dip during 2009/10 with a progressive recovery to the end of 2017 as which point prices had recovered to their 2007 highs.  In comparison, since 1998 Oxford property has consistently out-performed the UK average, following a steeper growth curve, experiencing a more dramatic short-term fall during 2008/9, since when, it’s recovery has been significantly steeper recovering 2009/10 losses during 2012/13.

Oxford vs London House Prices

So how has Oxford done compared to London?  Well the analysis above shows how closely Oxford (green) typically tracks the London market (Brown).  With a gap in average values opening since 2013 as London out-performed the wider UK market because wage growth recovered more strongly and foreign investment drove the market forward.

And, let’s not forget the rivalry with Cambridge.  How does Oxford compare with Cambridge?  The analysis below is also notable for the close tracking of Oxford (dark green) and Cambridge property (teal) prices, demonstrating that both Cities benefit from their world-renowned Universities, their proximity to London and their long-term investment in the knowledge-based services sector.

Oxford vs Cambridge House Prices

What these analyses really show is that property is a reliable long-term investment, and that property owners should not be blown off course by short-term fluctuations and alarming headlines.  Even a multi-generational event like the credit crunch, which had a profound effect on property for 12 to 24 months, is now a matter of history with the long-term trend of growth having been restored.

Can house prices predict 6 Nations success?

The Six Nations Championship kicks-off today with England defending their 2017 title.  But with Scotland and Ireland showing great form in the Autumn, how can we predict the likely victor in 2018?

Well last year the first and second placed teams (England and Ireland) were also top of the leaderboard in terms of annual house price growth.  So it goes without saying, that must be a great way to predict success this year....

Applying this irrefutable logic, I confidently predict that Ireland will win the Championship this year, with England second and Wales third.  While Scotland flattered to deceive in the autumn and will place just fourth ahead of France, with Italy picking up the wooden spoon!

But will Ireland win the Grand Slam?  Well for that we will have to wait and see until St Patrick's Day when they travel to Twickenham for the final and deciding game.

Whatever your colours, this looks to be an excellent and tight Championship, but house prices never lie!

Why is Oxford the UK’s least affordable City?

On average a UK City home costs 7 times annual average income, not since 2007 has property been less affordable when the average was 7.5 times annual average income.

Contrary to popular belief London is not the least affordable City when property price is compared to average income, that dubious accolade goes to Oxford, out on its own at 11.5 times average earnings.  Next comes our other world-famous city of learning Cambridge at 10.5 times earnings.

Each of London, Oxford and Cambridge have average house prices above £400,000 with Oxford average price being £422,055 over the last 12 months.

Whilst London property has stagnated during 2017, the Capital has also experienced the strongest earnings growth, rising out of the credit crunch malaise faster and stronger than Cities such as Oxford, Cambridge and Bath.  Cities popular with commuters to London such as Brighton and Winchester have also experienced property price inflation with people benefitting from London earnings demanding property and widening the gap for people who live and work locally.

Despite fewer completed sales, demand for Oxford homes has remained strong.  In north Oxford, Kidlington property saw increases as high as 25% during 2015 and 2016 due to the new Oxford Parkway station making the village a commuting hotspot, and whilst price growth stagnated in 2017, Kidlington remains a buoyant local market.

So why is Oxford so expensive?  First and foremost, Oxford offers a superb built environment combining historic and modern architecture and vibrant sports and leisure attractions.  It is a Cit that attracts 30,000 students annually many of whom live in private rented properties, and is a world recognised seat of learning and centre for the knowledge industries.  It is strategically located in the Centre of England offering easy access North, South, East and West, and is surrounded by beautiful Cotswold countryside.  Who wouldn’t want to live in Oxford?

But, the City and County Councils have failed to enable and encourage sufficient new build homes, resulting in a supply constrained property market.  In 2017, less than 1% of the homes sold in Oxford were new build.  That under-supply of new affordable homes to suitable for first-time buyers and/or to down-sizing retired residents, is causing there to be a chronic under-supply of 2 and 3 bedroom homes.  Whlst Government policy aimed at helping first time buyers is positive, in Oxford first time buyers are not limited by stamp duty, but rather the size of deposit required by mortgage lenders.

For people who own an Oxford home the strength in values is an important part of their wealth planning, for the city as a whole it is the biggest strategic risk that the City faces.  At present it is hard to see how local or national public policy will address this crisis.

Oxford Property Market and Hammond’s Budget Promise to Build 300,000 more homes

I miss the good old days of George Osborne as Chancellor, with his hardhat and hi-vis jacket. He must have visited every new home building site in the UK with his trademark attire! For the last few years, the nearest Philip Hammond got to donning a ‘Bob the Builder’ outfit was at his grandchild’s birthday party. However, with what appears to be a change in focus by the Tories, they appear to have fallen in love with house building again with the Chancellor’s promise to create 300,000 new households in a year.

Nationally, the number of new homes created has topped 217,344 over the last year, the highest since the financial crash of 2007/8. Looking closer to home: in total there were 320 ‘net additional dwellings’ in the last 12 months in the Oxford City Council area, a respectable increase of 113% on the 2010 figure!  Evidence of a prolonged period of under-investment.

The figures show that 66% of this additional housing was new build properties. In total, there were 211 new dwellings built over the last year in Oxford. In addition, there were 43 additional dwellings created from converting commercial or office buildings into residential property and a further 81 dwellings were added as a result of converting houses into flats.

While these all added to the total housing stock in the Oxford area, there were 15 demolitions to take into account.

I was encouraged to see some of the new households in the Oxford area had come from a change of use. The planning laws were changed a few years back so that, in certain circumstances, owners of properties didn’t need planning permission to change office space in to residential use.

With the scarcity of building land available locally (or the builders being very slow to build on what they have, for fear of flooding the market), it was pleasing to see the number of developers that had redeveloped vacant office space into residential homes in the local council area. Converting offices and shops to residential use will be vital in helping to solve the Oxford housing crisis especially, as you can see on the graph, that the level of building has hardly been spectacular over the last seven years!

Now we have had the autumn budget, Theresa May and Philip Hammond have set out their stall with housing as their key focus, including more funding for the supply side and an injection of urgency into the planning system.

The biggest question is, just where are the Government going to build all these new houses? Whilst the apparent new focus on the housing market by the Government is good news for all homeowners and buy to let landlords, in the short term, demand still outstrips supply for owner-occupied and private rented homes and that will mean continued upward pressures on prices for buyers and on rents for tenants.

Tenant right to sue landlords

The Ministry of Housing, Communities & Local Government yesterday announced that it will support a Private Members Bill proposed by Karen Buck MP, which would enable tenants in England and Wales to take legal action against their landlord if their rental property is in poor condition. Secretary of State for Housing Sajid Javid MP has backed Homes (Fitness for Human Habitation and Liability of Housing Standards), which is expected to have its second reading on Friday. The bill states: that all landlords (both social and private sector) must ensure that their property is fit for human habitation at the beginning of the tenancy and throughout; and where a landlord fails to do so, the tenant has the right to take legal action in the courts for breach of contract on the grounds that the property is unfit for human habitation As part of attempts to drive out rogue landlords and raise property conditions, the government has already introduced a range of powers for local authorities. April 2018 will see both the introduction of a database of rogue landlords and property agents convicted of certain offences and banning orders for the most serious and prolific offenders. I believe that this future legislation is targeting genuine rogue landlords, however, landlords should keep an eye on how this develops.  There is already a discernible trend of tenants being more willing to complain, raising complaints with The Property Ombudsman, even where the causes of their complaint (often damp and mould related) is caused by condensation resulting from their own way of living.  Proactivity is the order of the day - provision of advice to rectify condensation, treat mould and manage ventilation and inspection to monitor its implementation is key.

Young proferssionals are unable to buy their first home in Oxford – Are the Baby Boomers and Landlords to Blame?

Talk to some Oxford 20 something, for whom home ownership appears a vague dream, and they are vexatious towards the Baby Boomer generation and their pushover walk through life, their free university education, their eye watering property windfalls, their golden final salary pensions and their free bus passes.

If you bought a property in Oxford for £25,000 in first quarter of 1977, today it would be worth £549,429, an increase of 2097.7%.

But to blame the 60 and 70 year olds of Oxford for that seems a little unfair. The mature generations joined the property party in the 1970’s and 1980’s when they were allowed to take out huge mortgages, protected by the knowledge that inflation would corrode the real value of the mortgage, increase property prices, while boosting wage growth enhancing their ability to repay.

Unlike Government, neither do I blame the multitude of Oxford buy to let landlords, buying up their 10th or 11th property to add to their buy to let portfolio. They too, merely reacted to the peculiar historic inducements of the UK property market.

Surely someone is to blame?

Margaret Thatcher and Nigel Lawson are also good people to blame - selling off millions of council houses at knock-down values and delaying ending of the MIRAS tax relief in 1987. The Blair/Brown combo doubled stamp duty in 1997 and again in 2000, which, as a tax on property transactions, precluding a more equitable distribution of current housing stock. And, our current Government has had plenty of opportunity to change the stamp duty rules to incentivise those mature Oxford house movers to downsize, but have failed to act.

It’s easy to think the only reason that hundreds of first time buyers have been priced out of the Oxford housing market is because of private landlords. Yet, I believe they are undervalued.  With first time buyers struggling to save for a deposit, if it weren’t for those landlords buying up homes we would have a bigger housing crisis than we have today. Since the global financial crisis of 2008/9, local councils have cut services, and haven’t had enough money to build new homes.  Homes that were provided to Oxford instead by buy to let landlords helping to reduce the scale of the current crisis.

657 homes are being bought by buy to let landlords each year in the Oxford City Council area when otherwise they might have been available to other buyers.  But at a time when the current national average deposit is £51,800, most young people are simply unable to meet lenders’ demands. And, homes bought by local landlords are not standing empty, instead they equate to 4,596 of homes for local people, most of whom either see renting as a preferred option given the flexibility required by the early years of their professional lives, or accept that they cannot yet meet lender demands for deposits. 

Oxford Rents Set to Rise to £2,338pm in Next 5 Years

It’s now been close to 18 months since annual rental price inflation in Oxford peaked at 3.4%. Since then we have seen more humble rent increases. In fact, in certain parts of the Oxford rental market over the autumn, we have seen some slight reduction. So, could this be the earliest indication that the trend of high rent increases seen over the last few years, may be running out of steam?

Well, possibly in the short term, but in the coming few years, it is my opinion that Oxford rents will regain their upward trend as demand for Oxford rental properties outstrip supply, and this is why.

The only counterbalance to rental growth would be an increase in rental stock (i.e. the number of rental properties in Oxford). However, because of the Government’s new taxes on landlords being introduced between 2017 and 2021, buy-to-let has (and will) be less attractive in the short term for certain types of landlords (meaning fewer new properties will be bought to rent).

Interestingly, countless market experts assumed at the start of 2017, that the number of rental properties would reduce throughout the year. The assumption being as the new tax rules for landlords started to kick in, landlords would look to serve notice on tenants, sell up and invest their capital elsewhere.

Anecdotal evidence suggests, confirmed by my discussions with fellow property, accountancy and banking professionals in Oxford, that Oxford landlords are actually either re-mortgaging their Oxford buy-to-let properties instead or converting their rental portfolios into limited companies to side step the new taxation rules.

The sentiment of many Oxford landlords is that property has weathered economic shocks well in the past, and there is something inheritably understandable about bricks and mortar – compared to the voodoo magic of the stock market and other exotic investment vehicles like debentures and crypto-currencies.

Remarkably, there is some good news for tenants, as the Government recently published the draft Tenants’ Fee Bill, which is designed to prohibit the charging of tenants lettings fees on set up of the tenancy. However, looking at evidence in Scotland, I expect rents to rise to compensate landlords, thus hammering faithful tenants looking for long-term tenancy agreements the hardest. This growth will be on top of any usual organic rent growth.  It really is swings and roundabouts!

Rents in Oxford over the next 5 years will rise by 9.2%, taking the average rent for a Oxford property from £2,141 per month to £2,338 per month.

Rents in Oxford over the last 12 years have risen by 21.5%. I don’t expect the future rise to be a straight-line either, because I have to take into account the national and local Oxford economy, demand and supply of rental property, interest rates, Brexit and other external factors. Please see the graph for my projections

In the past, making money from Oxford buy-to-let property was as easy as falling off a log. But with these new tax rules, new rental regulations and the overall changing dynamics of the Oxford property market, as an Oxford landlord, you are going to need to work smarter in the future and keep abreast of information, advice and opinion to hand on the Oxford, Regional and National property markets.

Propertymark predict 2018 will be a year of change

This article was first published in Property Investor Today, and is republished in the Blog with our own comments added:

NAEA Propertymark and ARLA Propertymark have shared their forecasts for the rental and buying market in 2018, with rental prices set to rise in the 12 months ahead.

According to 59% of ARLA Propertymark letting agents, rent prices will increase next year, while 19% believe they will decrease. Some 62% predict the supply of rental stock will fall in 2018, while 53% think demand will rise. Meanwhile, seven in 10 letting agents expect private rented taxes to rise further in 2018.

Blog comment:  I am entirely aligned with these findings.  There should be no doubt about landlord tax costs rising given that Mortgage interest relief tapers-off further from April 2018.

“2017 was a big year for the lettings industry, and tenants felt the effects of this,” David Cox, chief executive of ARLA Propertymark, commented.

“Unfortunately, it looks like rising rent costs are going to continue into the New Year as agents need to be moving into a 0% fee business model by October, which will push rents up as the costs are passed through landlords and onto tenants.”

Blog comment: ARLA is advising its members that the tenant fee ban will be introduced from October 2018.  Whilst there is no firm date provided by Government, this is our current working assumption.  This will immediately impact the Oxford student lettings market for the 2019/20 academic year.

Cox believes the regulations making their way through Parliament next year will have a positive effect on the rental market, including the prospect of housing courts and longer-term tenancies.”

He said: “While these policies will be developed rather than implemented, they should start to affect the market as agents adapt their business in anticipation.”

Blog comment: I believe the new legislation will prove disruptive for at least 6 months as the market gets to grips with the ban on tenant fees.  Once a date for implementation of the ban is confirmed, tenants will seek to delay their decisions until as late as possible in the hope they can avoid paying a fee.  There is no clear market-wide consistent response to the fee ban emerging, suggesting that the market will adopt different approaches, causing uncertainty for tenants and landlords.

“Overall, the industry is going through a seismic change and the lettings market we know today will be radically altered over the next five years,” warns Cox. “This change will be painful for agents, but we firmly believe that the industry will come out of the other end stronger, more professional and with a robust reputation among consumers.”

Blog comment:  Any letting agent which is not actively planning for the ban now, is in danger of financial instability.  In my own agency we have been preparing now for well over 12 months.

By contrast, 43% of NAEA Propertymark’s estate agents predict that house prices will fall next year. The majority (44%) expect supply to remain the same in 2018, while 29% think it will decrease. Some 32% think demand will decrease in line with this, but almost half (46%) expect it to remain the same.

Blog comment: Prices in Oxford remained robust in 2017 rising around 6% despite transaction volumes falling around 17% YoY.  I expect Oxford prices to perform well relative the wider SE market and remain in positive territory.

Meanwhile, a third (34%) expect incidences of gazumping to decrease in the New Year, while the trend of renovating rather than moving is expected to continue as 60% think more homeowners will do this.  “However,” he continued, “looking ahead to next year, more than half of our members don’t think the first-time buyer tax relief will have a real impact on the number of sales being made to the group.

Hayward added: “Agents expect supply to remain the same but demand to grow which sounds like bad news, but if we can improve the process of buying a property, we’ll be making vast improvements to the sector which will ultimately make it easier and provide more certainty for first-time buyers.”

The trade body also has high hopes as well as predictions. “Our members want to see stamp duty relief rolled out nationally to all buyers, and hold out hope that housing stock will increase,” said Hayward.

“This will be a case of ‘wait and see’ – the Government has made many such promises in the past which we’ve never seen translated into reality.

Blog comment:  Predictions on the future property market always seem to be pessimistic, partly because that seems to sell more copy, and partly because there is so much Government intervention it is hard to predict the fall-out.  The fundamentals in Oxford are strong.  There is an under-supply of new build property, and under-supply of affordable starter homes, and an under-supply of private rented accommodation.  Under-supply can create stagnation particularly when 2nd time buyers can't afford to move, and 1st time buyers can't find or afford a starter home.  But, where demand stays strong, prices tend to hold-up well.  Despite far lower sales transactions in 2017, prices rose 6%.  Lon-term new supply of starter and small family homes is desperately needed to increase sales volumes and lubricate the market.

Housing front and centre in 2017 Budget, but what will it mean for Oxford?

The Budget has been announced and analysed, so far with relatively few unannounced ‘nasties’ having been found.  It is welcome that housing is receiving the attention it deserves, recognising: the challenge faced by first-time buyers; that too few new houses are being built; and, that renting is now a preferred alternative for many people.  But, are the Chancellor’s plans going to serve Oxford and the County well?

No Stamp duty for first-time buyer for the first £300,000 spent

Oxford is well known as having one of the largest gaps between average property price and average salary anywhere in the UK.  With one-bedroom apartments in central Oxford selling for £385,000 or more, even without stamp duty, most first-time buyers can’t afford to live in the City.  But places such as Littlemore, Greater Leys, parts of Marston and Barton do provide realistic opportunities, particularly where a shared ownership option is available.

But, the changes to stamp-duty do not benefit those looking for their second home, who need to vacate their starter homes to make way for first time buyers.  House building takes time, and consideration should be given to a tapered reduction in stamp duty benefitting 2^nd and 3^rd time buyers encouraging them to move.  Only then, would these measures really benefit Oxford’s market where 97% of sale transactions are within existing housing stock.

100,000 new homes for Oxfordshire

As part of plans to connect Cambridge and Oxford, one million homes are planned between these great University Cities.  Of those, 100,000 are expected in Oxfordshire.  Oxford must fight, and fight hard for the lion’s share of those new homes.  Without them, the local property market will remain supply constrained.  With Oxford Parkway train station, North Oxford – Kidlington, Marston and Wolvercote present significant opportunities to build with easy access to the City centre, and transport links to the Midlands and London.

A consultation on longer tenancies

The Chancellor announced a new consultation on how to encourage longer tenancies.  This will bring the total housing consultations to 16!  Oxford, like most places in the UK is experiencing a trend towards longer tenancies.  Once student tenancies are removed from the average tenancy length is between 24 and 30 months.  Longer tenancies benefit both landlord and tenant where each is satisfied with the other (the majority of tenancies).  This suggests to me that no consultation is required to stimulate a trend that is already occurring under current arrangements.

It is great that housing is getting the Government attention it deserves, but our local authorities must seize the day, facilitate the planning process and secure their fair share of the new funds.

Oxford is the 3rd least affordable place to buy a home

House prices in the capital are now 14.5 times the earnings of an average Londoner, according to Hometrack, hitting the highest level on record. London was followed by Cambridge, where the average property is 14.3 times earnings, Oxford (12.6) and Bournemouth (10.1).

Last week’s budget confirmed Government plans to link Cambridge and Oxford by road and rail, with one million new homes planned along the arteries created. 

Oxford’s achieved prices for houses sold over the last 12 months is 6% up on the previous period according to Land Registry data, despite a 17% reduction in the number of completed transactions.  Whilst that is welcome news for current Oxford property owners, it points to continued supply constraint.  Oxford’s second-time buyers – young couples looking to trade up as they plan a family, can’t afford to move, meaning that first-time buyers face an acute shortage of available, affordable properties.  The new stamp duty incentive will not solve Oxford’s supply constraint.

New-build houses account for only 3% of available homes, with the majority being larger properties targeting already affluent Oxford house buyers.  Less than 1% of starter homes are new build.

Oxford City Council and Oxfordshire County Council must free-up development land and fight to secure above a fair share of the one million new homes planned.  The current target of 100,000 new homes is insufficient unless they are centred in Oxford or within easy commuting range.

Newspaper headlines have announced the demise of buy to let in Oxford, predicting a ‘great sell-off’ of private rented property.  To date, this has not materialised, and given the 6% increase in values, it should not be a great surprise that savvy landlords have held onto their assets.  However, private investors are not making new investments due to the stamp duty surcharge imposed on 2^nd homes. That should worry young people looking to live and work in Oxford.  There is already an under-supply of good quality rental properties in Oxford, and many more will be required given how long new build homes take to come available.

Increasingly private landlords are recognising the affordability benefit offered by villages outside Oxford.  Kidlington, Wolvercote and Marston continue to offer value for money, and rental yields above 4% in the first year of ownership.  Kidlington particularly has benefitted from the opening of Oxford Parkway station and regular bus routes to Oxford.  Kidlington is now recognised as a destination for couples and young families leaving London but wishing to retain easy commuting access.

Reader feedback

I'm always keen to hear from our readers and one of you have commented on an article we re-published yesterday that was published by the BBC.  I've received the following email from one of our readers - Rob L who, I believe correctly, has pointed out some inaccuracies in the article we re-published yesterday concerning changes to CGT:-

Hi Bill

The principle of this article is correct, but I think there are a few factual inaccuracies which let it down a bit.

1. The CGT rate for private investors selling a property is 18% (if basic rate income tax) or 28% (if higher rate) not 40%
2. Every individual has an annual tax free allowance for capital gains which is going up from £11,300 per person to £11,700 in April 2018.  This can be deducted from your capital gain before calculating tax liability when you sell.  If you bought (and sold) the property jointly as a couple you can each use your allowances
3. Companies pay capital gains at their corporation tax rate which is currently 19%
4. Although indexation relief is being removed if you successfully incorporate taking a property into a Limited Company then (assuming you are able to use Section 162 relief and don’t pay CGT on the transfer then at the point you incorporate you bring the property into the Company at its current market value, which means the future CGT liability will be lower.  Companies of course do not get a tax free CGT annual allowance.

Good intent in the article but suggest you get whoever wrote it for you to do a bit of fact checking otherwise it loses some credibility.

All the best,

Rob

Thanks Rob, We make every effort to ensure the data we use is valid and articles we occasionally re-publish are accurate.  I think on this occasion we were guilty of trusting the source.  I am always keen to hear from readers, so thanks to Rob for taking the trouble to write on this occasion!

Captial gains tax hike for BTL comapnies hidden in the budget

The BBC reports that there is a Capital Gains Tax measure buried in the small print of the Budget which is likely to hit companies that own buy to let properties.

Individuals who own more than one property - for buy to let or other purposes - pay 40 per cent CGT on the total the property appreciated when they come to sell it. Companies, on the other hand, have been allowed to deduct the amount of that price rise that was due to inflation. 

The BBC gives the example that if a flat was purchased for £100,000 for the purposes of letting out, and was 10 years later sold at £200,000, the individual who owned it would have to pay £40,000 CGT - that is, of course, 40 per cent of the £100,000 profit.

However, if a company purchased the same property for £100,000 and inflation had been at three per cent for that 10-year period, inflation would have accounted for £34,000 of that price rise.  

Then the company would only pay 40 per cent CGT on the rest of the rise - so it would be 40 per cent on the remaining £66,000 price rise. Therefore in that case the CGT would be £26,400 rather than £40,000.

However, the BBC reports that it now appears that from January 2018 that discrepancy will be eliminated. 

The change will only affect price rises from January of next year, so companies will not pay extra on the gains they have already made.

The BBC says property is not the only asset this new tax hike affects, but comes on top of a series of measures in recent years which can be seen as attacks on buy to let.

In the past 18 months, many individual buy to let landlords have incorporated, setting up companies owning their investment properties in a bid to reduce the liability of mortgage interest tax relief, which is being phased out for landlords.

The 2017 Autumn Budget as it happens.......

Morning folks,


I hope you are well.

So we all await with baited breath the deliverance of this years Autumn Budget from Mr Hammond and there is no doubt he has had plenty to consider from representatives from the UK housing market. So what did he come up with?

Not a great deal is the answer but here are the highlights:

Stamp duty

From today, the government will abolish stamp duty for all first-time buyers for homes worth up to £300,000 in the UK, or £500,000 in London.

Housing

The Chancellor says that over the next five years the government will provide a £44bn capital investment to boost the housing market.

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He says that by the mid-2020s there should be 300,000 homes being built every year – the highest level since the 1970s.

Hammond also announced plans to allow councils to charge a 100pc premium on council tax on empty properties.

In Oxfordshire there is a commitment to building 100,000 new homes by 2021

Review of the housing market was very short and sweet but of particular note to first time buyers and with immediate effect. Good news indeed..... In theory!

I think we were all hoping to see a little bit more from the chancellor that helps first time buyers get on the ladder NOW. Commitment to building new properties is all well and good but this is very much tomorrow's vision. Key to short term solutions is enticing investors back into our market. The chancellor has chosen to ignore calls to provide private landlords with some type of tax break/ relief or to remove the 3% surcharge on 2nd homes which would encourage investors to buy new property and make them less likely to increase rents.

An opportunity missed I would say!

What do Oxford’s landlords, and tenants need from the budget this week?

As usual there is no shortage of sensational headlines about the importance of the budget for the Government, and for key Departments including Health, Work & Pensions and Defence.  However, for Oxford’s tenants it is the headlines about house building that are the most important, and Oxford’s embattled private landlords it will hope that the budget doesn’t pile further pressure and expense on them.

In Oxford, whilst prices achieved for sold houses has continued to rise (with most recent data confirming a 6% rise in achieved prices over the last 12 months when compared to the prior year), the total number of transactions (the number of houses successfully sold having been put on the market) has fallen by 17% to just 2,702.  It is this statistic that should worry everyone.  I believe that the fall in the number of transactions is in part due to lower levels of house purchase by private landlords, which in turn means that future supply of new rental properties is not growing to keep pace with demand.

Regular readers of my column will know that I have identified a growing level of demand in Oxford for small family homes for rent.  As ‘first-time’ tenants start to plan their families and out-grow their homes, they have a requirement for 3-bedroom properties in areas with nursery places, good transport links and easy access to supermarkets and other shops.  In Oxford, this is currently under-supplied in the rental sector, with many suitable properties instead targeting multiple tenants rather than families.

Without such provision, and with 3 bed properties remaining prohibitively expensive to buy, these young families will either need to look outside of Oxford or look for affordable new build within Oxford.

Over the last 12 months in Oxford just 82 new build properties were sold, that’s just 3% of total transaction in the same period.  Of those new build, 51 were larger detached properties and just 12 the terraced or semi-detached homes which tenants with young families are most likely to target.

This double-whammy - a lack of new investment by Oxford’s private landlords and a dearth of suitable new build - will create a pinch-point for Oxford’s private renters at a time when demand for rental properties has never been higher.  The lack of supply is clearly responsible for house prices remaining buoyant at a time when total transactions have fallen so dramatically.  Oxford is a supply-constrained market, and as a result as landlord costs increase they are likely to result in higher rents.

Following the introduction of a stamp duty surcharge for owners of multiple properties, and the restriction on landlords’ ability to off-set the costs of borrowing when calculating their income tax, the Government has no fewer than 15 ongoing consultations in parliament which could further affect the private rented sector, but not help to deliver more new homes that Oxford so desperately needs.  Instead, they will make landlord compliance more difficult, increase the costs that landlords’ have to bear and, further discourage good ethical landlords from investing further in Oxford at a time when their investment is most needed.

Will your property survive the energy test??

For landlords that are not aware it is now less than six months until the new Minimum Energy Efficiency Standards are introduced in April 2018, I have considered the possible effects on landlords and the private rented sector and some of the suggested methods to improve property that will fall under the minimum requirements.

The 2015 Energy Efficiency Regulations set out new minimum energy efficiency standards for England and Wales. These regulations will make it unlawful for landlords to grant a new lease for properties that have an energy performance certificate (EPC) rating below E, from 1 April 2018, unless the property is registered as an exemption. According to research around one in five landlords (21%) will expect to spend between £1,000 and £4,000 on energy efficiency improvements in their properties over the next five years, but in reality improving the energy efficiency of a property to meet the new legislation does not need to incur such high costs. For landlords who are worried about the potential costs of upgrading properties, financial support may also be available through the Energy Company Obligation if tenants meet certain qualifying criteria.

Here we list some of the markets top tips to improve your EPC ratings:

1.       Don’t underestimate the importance of insulation in making a property more energy efficient. If the property was built before or around 1920, it most likely has solid walls. Solid wall insulation can be installed from either the inside or the outside. If the property was built after 1920 it’s likely to have cavity walls. These have a double external wall with a small gap between which can be filled with insulation.

2.       Don’t just think of improving energy efficiency as something for meeting regulations, it’s a commercial decision too. Given most tenants are responsible for paying energy bills, some may be willing to pay more for properties that are energy efficient, so make sure you’re making the most of this as a selling point.

3.       Without properly insulated windows, the property could be losing up to 10% of its heat. Double glazed windows make a big difference when it comes to lowering energy bills as well as reducing condensation and noise. Instead of double glazing you could install secondary glazing which involves fitting a pane of plastic or glass inside the existing window recess to create an insulating layer of air. Though not as effective as double glazing, secondary glazing still saves a significant amount of energy and allows you to maintain good appeal by keeping original features such as sash windows.

4.       EPC ratings look only at permanent improvements to the fabric of the building so think about long-term upgrades that will help to reduce heat and energy use. Simple things for example draught excluders will help keep heat in, but for the EPC you need to find permanent ways to fill the gaps to stop heat escaping through windows, doors, letterboxes and even keyholes. 

For those looking to bring their properties completely up to date, consider renewable technologies such as solar panels with an at-home battery to store electricity for use even when the sun goes down. Be aware these will contribute to your rating only if they’re helping to heat the house, rather than providing electricity for other uses. Whilst some of the above mentioned suggestions will reduce costs for landlords to a certain degree it should not discourage landlords from investing in long term solutions for their properties.

In the last few years energy efficiency for rented property has really started to take centre stage, with more and more tenants enquiring as to the properties energy performance prior to making commitment. It is now more important than ever that landlords embrace the changes that will be needed to ensure their properties meet the minimum standards necessary. In an already competitive market the changes you make to the properties EPC rating could be the difference between success or long term failure.

Oxford Homeowners Are Only Moving Every 18 Years (part 2)

In the credit crunch of 2008/9 the rate of home moving plunged to its then lowest level ever. In 2008 and 2009 the rate at which a typical house would change hands slumped to only once every 17.5 and 15.4 years respectively.

The biggest reason being that confidence was low and many homeowners didn’t want to sell their home as Oxford property prices plunged after the onset of the financial crisis. Between 2013 and 2015, the rate at which people moved increased in Oxford, yet last year, it dropped again to a new lowest level of once every 18 years, meaning as a City, there has been a 44.84% drop in moves by homeowners in Oxford, compared to 15 years ago.

So why aren’t Oxford homeowners moving as much as they did?

In last week’s article I talked about how ‘real’ incomes and savings have been dropping. Another issue is the long-term failure to build sufficient new-build homes of the right type. 

Back in the 1960’s and 1970’s, as a country, we were building on average 300,000 and 350,000 households a year. The Barker Review a few years ago said that for the UK to stand still and keep up with housing demand (inflated by a number of factors including: immigration, people living longer, marital divorce, a 50% increase in the number of households with a single person since the 1980’s) we needed to build 240,000 households a year. Over the last few years, we have only been building between 135,000 and 150,000 households a year. In Oxford just 1% of property sold is new build (just 7 properties sold per month on average over the last 12 months).

As the UK Population gets older, there is no getting away from the fact that a maturing population is less mobile.  Those retired people who want to move are finding there is no suitable smaller option available to them in the place they want to live.

So, what does this mean for Oxford homeowners and landlords?

Many of the older generation in Oxford are stuck in property that is simply too big for their needs. The fact is that, in Oxford, nearly five out of every ten (or 46.5 per cent) owned houses has two or more spare bedrooms; or to be more exact ...

12,470 of the 26,832 owned households in the Oxford

area have two or more spare bedrooms.

As young families struggle to move up the housing ladder, with those young families bursting at the seams in homes too small for them, we have a severe case of under-occupation amongst the older generation – retired people staying put in their bigger homes, with a profusion of spare bedrooms with a dearth of smaller alternative properties available to them.

Many commentators have suggested the Government should give tax breaks to allow the older generation to downsize, yet in a recent White Paper on housing published just weeks before the General Election, there was no reference to any detailed policies to inspire or support them to do so.

This means that there could be an opportunity for Oxford buy to let landlords to secure larger properties to rent out, as the demand for them will surely grow over the coming years. As for homeowners; well those in the lower and middle Oxford market will find it a balanced sellers/buyers market, but will find it a buyers’ market in the upper price bands.  Despite a 17% reduction in completed transactions, prices have risen 7% over the last 12 months, confirming a supply constrained market.

Oxford Home Owners Are Only Moving Every 18 Years (Part 1)

The average house price in Oxford is 12.87 times the average annual Oxford salary. This is higher than the last peak of 2008, when the ratio was 9.61. Several City commentators anticipated that in the ambiguity that trailed the Brexit vote, UK (and hence Oxford) property prices might drop like a stone. The point is - they haven’t!

Now it’s true the market for Oxford’s swankiest and poshest properties looks a little fragile (although they are selling if they are realistically priced) and overall, Oxford property price growth has slowed, but the lower to middle Oxford property market appears to remain quite strong.

Scratch under the surface though, and a different long-term picture is emerging away from what is happening to property prices. Oxford people are moving home less often than they once did. Data from the Office of National Statistics shows that the number of properties sold in 2016 is lower than it was in the Noughties and lower than I has been over the last 8 years.

We are mirroring the post credit crunch (2008 and 2009) low levels of property sales, and the torpor of the Oxford housing market following the Brexit vote has seen the number of property sales in Oxford and the surrounding local authority area level off.  It is too early to tell if this will be a new trend.

It was the 1980’s that saw the highest levels of people moving home. Nationally, everyone was moving on average every decade. Even though it was during the Labour administration of the late 1970’s where the right to buy one’s council house started, it was the Housing Act of 1980 that that really got council tenants moving, as Margaret Thatcher’s Tory government financially encouraged council tenants to buy their council-rented homes.

Looking at the property sales figures in the Oxford area since 2010/11, what has caused the reduced activity which has been mirrored nationally? The reasons behind this are complex, but a good place to start is the growth rate of real UK household disposable income, which has fallen from 5.01% a year in 2000 to 1.68% in 2016. Also, things have deteriorated since the country voted to leave the EU as consumer price inflation has risen to 2.7% per annum, meaning inflation has eaten away at the real value of wages.

With meagre real income growth, it has become more difficult for homeowners to accumulate the savings needed to climb up the housing ladder as nationally, the level of savings has also dropped from 4.26% of household income to -1.11% (i.e. people are eating into their savings).

Next week I will be discussing how these issues have led to a slump in the number of Oxford people moving home with house owners moving just once every 18 years.

Top slice mortgages may help Oxford investors

Which? – the consumer organisation - says a handful of buy to let mortgage lenders have found a way of helping so-called ‘portfolio landlords’ to borrow more than they might have expected under tough new regulations.

Last month the Prudential Regulation Authority tightened the criteria which individual lenders had to use when handling applications from portfolio landlords - that is, those with four or more buy to let properties. 

But now the Which? Reports that “a handful” of lenders offering ‘top slicing’ deals, which allow landlords with low rental yields to make up their shortfall through other income. 

“Top slicing takes a landlord’s personal income, such as their salary or pension income, into consideration when assessing their affordability, rather than just looking at the profitability of their property portfolio. Top slicing is good news for landlords buying higher value properties which might have lower rental yields, as it allows them to use external personal income to bridge any shortfall” says a statement from Which? 

With Oxford prices rising again over the last 12 months by around 6%, and average Oxford homes costing £414,817, Oxford offers lower rental yields over the initial 3 to 5 years following purchase.  As a result, ‘Top slicing’ products would appear highly relevant for landlords aiming to increase their investment in Oxford property.

The consumer group says currently the lenders who undertake this are Aldermore, Barclays, Bluestone, Clydesdale Bank, Coventry, Mansfield, Metro Bank, NatWest, Vida and Virgin Money.

However, because of the restrictions imposed on most lenders by the new PRA criteria, some 14 companies have pulled out of the portfolio landlord market completely, says Which? This includes Santander, the TSB and the Post Office.