Why a ban on tenant fees is the last thing Oxford’s tenants need

Let’s be honest, Oxford is an expensive place to rent.  In fact, beyond the very high cost parts of London it has the largest gap between average income and house prices in the UK.  With this in mind the Chancellors recent announcement on tenant fees would surely be welcomed as good news right? Maybe not when the implications are truly considered.

To pass a credit reference check, a tenant must be able to prove that they can afford the rent which is determined based on their annual income. Typically, this is calculated by a tenant’s annual income being 30 times the monthly rent i.e. for a rent of £1,000 per calendar month, the tenants’ will need to prove that their combined income is at least £30,000 per annum.

Whilst the actual multiple required might vary between landlords, the basic principle above is the ‘acid test’ for affordability.  If, the tenants are below the required level of income, some landlords will allow them to pay a proportion of the annual rent in advance to ensure that subsequent monthly payments fall within the affordability threshold.

At Martin & Co Oxford, an average property has a rent of £1,196 per calendar month.  Using the measure above that requires the tenants to have a joint income of £35,880 per annum.  At the time of writing the average income in Oxford is around £26,500 meaning that most couples require two incomes to rent an average Oxford home making it difficult for them to afford.

For tenants, is it preferable to pay a fee of £300 at the start of their tenancy or for the rent to rise by 5% per annum?  Already rents in Oxford rise on average by 3% per annum according to trend data from the last 5 years.  So, in 2017 the average rent of £1,196 per calendar month mentioned above can be expected to rise by £36 per month.  Should rents rise by a further 2%, as many predict will happen as a result of the ban on tenant fees, that increases to £60 per month or £720 in total i.e. £288 per annum above trend.  So, at face value, tenants will be slightly better-off – they save £300 in tenant fees, and pay £288 more in rent, meaning they are £12 to the good.  But is that preferable?  To qualify as being able to afford a property at the new higher rent those same tenants will need to earn an additional £1,800 per annum - an increase of 5% yet incomes in Oxford are rising at nearer 2% per annum.  So, anything that results in the affordability gap widening further risks tenants failing to qualify for new tenancies, or having to find much larger lump sums in advanced rental payments to make-up any income shortfall.

The current model where a tenant pays £300 at the start of their tenancy is preferable for many as it is a sum which they can afford, and it falls outside of the assessment of their ability to afford the rent during the term of the tenancy.  In the example above where income increases by 2% and rent increases by 5%, they will fall short by £1,082 per annum.  In this situation they will either be deemed unable to afford the property, or be required to pay the shortfall up-front, or be required to find someone prepared to stand as a guarantor.  When considered in this way, for many tenants a known and defined up-front fee is always preferable.

Our concern as one of the main agents in Oxford is the affect that the ban will have on both tenants and landlords. We want landlords to continue to be able to invest in property providing homes for people when Oxford is most in need, and we want tenants to be able to be successful in applying for properties that they want to make their home.

Energy efficiency regulations – 8% of Oxford rented homes unrentable by 2018?

Around one in 12 properties Nationally that are currently available to rent could become unrentable if the Government’s energy efficiency plans go ahead according to Quick Move Now.

In Oxford, 8% of rented properties equates to around 1,400 homes. According to the Royal Institute of Chartered Surveyors a figure close to 18,000 more people will require rented property over the coming 7 years which equates to a requirement for a further 7,400 homes.  If 8% of the current stock is unrentable the need for new rented housing increases to 8,800 - at least until those homes with a poor energy rating can be brought up to standard i.e.  a minimum rating of E on the energy performance rating.

Oxford City Council is offering landlords free energy performance audit to landlords.  Anyone uncertain about whether they will be compliant with forthcoming rules should take up this offer so they have time to undertake the necessary works to bring their property above the minimum E rating.

Oxford Property in 2016 and 2017 – under-supply continues to dominate

2016 has certainly been eventful!  Oxford found itself at odds with the national vote for Brexit, Donald Trump’s election-win is causing many to fear for the future and…the Bake Off moved to Channel 4.  At least the Oxford property market provided some certainty.

Last month, Oxford property values rose by 0.31%, leaving them, year on year 7.1% higher, whilst Oxford asking prices are down 2.0% month on month. As I predicted, Oxford property has recovered well after a summer lull and, according to Zoopla, the average value of an Oxford home is now £509,000.

Oxford asking prices continue to hold up well, up 4.7% year on year, despite the pre-Christmas fall.

In Oxford, the volume of property sales has fallen slightly, suggesting a slowing market.  But, it’s interesting to take note of a recent survey by the Royal Institution of Chartered Surveyors (RICS), stating new buyer enquiries and new instructions are falling at the same rate, suggesting limited downward pressure on property values.

Across the UK, property values are generally rising more slowly.  Rather than a Brexit effect, I believe this is mostly related to affordability.  The gap between average income and average property price is widely seen as a natural correction factor for house prices, and this remains a critical issue in Oxford - one of the least affordable places in the UK to buy a home.

On the other hand, interest rates remain at a record low of 0.25%. The cut in interest rates in the late summer was the medicine for uncertainty, but, due to stricter lending criteria, affordability trumps low interest rates for many first-time buyers, benefitting older more affluent buyers disproportionately, with continuing stagnation at the bottom of the market.

 So, what will happen in 2017 in the Oxford property market?

Some say until we know what type of exit the UK will make from the EU it is hard to evaluate with certainty. I believe, the whole Brexit issue is a sideshow to the main issue in the Oxford which is demand for homes outstripping the supply of houses.  Oxford ranks 5^th nationally for gross value-add and 8^th nationally for population growth.  32% of Oxford’s population is aged between 18 and 39 years, and 30% of the population live in private rented accommodation.  Neither house building nor availability of rental homes is keeping pace with demand, and I believe this will worsen during 2017.  Whilst it is great news for Oxford that it will become better connected to Cambridge (bridging the two great knowledge economies in England), it will only increase demand to live and work in our great City.  Instead of bashing landlords in the mistaken belief they are helping tenants, Government needs to go the hard-yards – building 3 times as many new houses AND stimulating new rental supply across Oxford’s post codes.

Is it worth using a letting agent?

I was interested to read an article in Letting Agent Today this morning detailing the results of a survey conducted by Endsleigh the insurance company.  Their survey suggests that on average a letting agent saves a landlord an estimated £1,910 a year.   At a time when landlords are feeling financially bruised due to Government legislative changes, it is interesting to note that landlords should trust the value for money offered by letting agents. 

The survey suggests that of those landlords who believe they save money by not using a letting agent, the average sum ‘saved’ on fees was £159 per month. 

However, comparative analysis of the rental income and void periods for those landlords with, vs. those without agents suggested that agents saved their clients an average of almost £2,000 per annum.

Most of the savings for landlords are created by agents minimising void periods when compared to landlords who go it alone marketing their property.

Some 76 per cent of respondents to the survey reported that their agent helped them pro-actively find tenants, as well as providing other services such as help with legal and financial matters and so contributing to a reduction in overall costs.

The survey suggests that relationships between letting agents and landlords are not about financial benefits alone.  Of those landlords who use an agent, 50 per cent were most attracted because of their local knowledge, 41 per cent feel the main benefit of working with an agent is that it provides peace of mind, and 25 per cent say they communicate with their letting agent on a weekly basis.

I admit, as the owner of a letting agent, I have a vested interest in this survey. However, I recently had cause to list the main services that my agency provides to landlords, and it is a surprisingly long list of different services.  Over recent years, legislation that applies to landlords has become more complex, and more significant in terms of sanction.  A key part of our service is to keep abreast of legislation and to assist our landlords to work effectively within the law to optimise their own position, particularly at times when a tenancy has become difficult.

It is also interesting to me to note that the survey confirmed a point I have raised with landlords recently – that the cost of void periods far outweigh other costs associated with letting property.

As landlords move into 2017, it is a timely reminder of the broad and important services that letting agents provide to their clients, which saves them money and assists them to sleep easier at night.

Average Rents Paid by Tenants in Oxford rise to £2,490 per month

Back in the Spring, there was a surge in Oxford landlords buying buy to let property in Oxford as they tried to beat George Osborne’s new stamp duty changes which kicked in on the 1^st April 2016. To give you an idea of the sort of numbers we are talking about, below are the property statistics for sales either side of the deadline in OX2.

Jan 2016 – 42 properties sold

Feb 2016 – 27 properties sold

March 2016 – 91 properties sold

April 2016 – 19 properties sold

May 2016 – 23 properties sold

Normally, the number of sales in the Spring months is very similar, irrespective of the month. However, as one can see, this year was a completely different picture as landlords moved their purchases forward to beat the stamp duty increase. You would think that even with a basic knowledge of supply and demand economics, rents would be affected in a downwards direction?

However, there appears to be no apparent effect on the levels of rent being asked in Oxford - and more importantly achieved - and this direction of rents is not likely to reverse any time soon, particularly as legislation planned for 2017 might reduce rental stock and push property values higher. The decline of buy to let mortgage interest tax relief will make some properties lossmaking, forcing landlords to pass on costs to tenants in the form of higher rents just to stay afloat. Even those who can still operate may be deterred from making further investments, limiting the growth in available rental stock at a time of severe property shortage.

But it’s not all bad news for tenants. Whilst average rents in Oxford since 2005 have increased by 22.6%, inflation has been 38.5% over the same time frame, meaning Oxford tenants are 15.9% better off in real terms when it comes to their rent (which is a sizeable chunk of most people’s monthly household budgets)

Year	Average Rent in Oxford per month
2005	2030
2006	2077
2007	2123
2008	2193
2009	2227
2010	2196
2011	2249
2012	2300
2013	2334
2014	2369
2015	2421
2016	2490

I found it particularly interesting looking at the rent rises over the last five years in Oxford, as it was five years ago we started to see the very early green shoots of growth of the Oxford economy.  Following the Credit crunch (2011), rents in Oxford have risen by an average of 2.4% a year – fascinating don’t you think?

The view I am trying to portray is that while renting is often portrayed as the unfavorable alternative to home ownership, many young Oxford professionals like renting as it gives them flexibility in their life. Overall, tenants have had a good deal with below inflation increases in rents over recent years. As Government policy targets landlords financially, it is likely that there will be a period of higher rent increases across Oxford, as landlords off-set the additional costs being imposed on them.  The data suggests a small rebalancing between tenants and landlords is overdue, and can be accommodated without driving rent above the medium term inflation trend.

Oxford Housing Crisis? Only 1.9% of Oxford Homes Are For Sale

The Oxford Property Market is bucking the predicted post-Brexit fallout with a return to business as usual after the summer break. Unfortunately, that means a lack of choice continues.  The volume of available homes is still well down on what would be considered healthy levels last seen earlier this decade, meaning the substantial demand/supply imbalance continues. Until we start to see consistent and steady increases in properties coming on to the market in Oxford, the market is likely to see upward pressure on property values continue.

However, there may be hope for first time buyers, with homeowners looking to move upmarket and buy to let landlords looking for their next investment, the Oxford property supply crisis just might be starting to ease, as the number of new properties coming onto the market in Oxford has increased.

For example, last month OX2 saw 84 new properties coming on to the market, not bad when you consider for most of the last year the figure was in the late 60’s / very early 70’s. With the average available Oxford property value hitting a record high, pushing ever closer to £500,000 according to my research, this shortage of properties over the last two years has contributed to this ‘fuller' average property figure, but there is a glimmer of hope that the Oxford's supply crisis may be starting to ease.

1.95% of Oxford properties are up for sale. In terms of actual chimney pots, that equates to 871 properties on the market in Oxford (within 4 miles of the centre of Oxford) – which, when compared to only a year ago when that figure stood at 810, is a serious increase in the number of properties available to buy. Split down into the type of property (where known), it makes even more fascinating reading:

 

·       Detached Properties in Oxford  - 180 on the market a year ago compared to 187 on the market now – an increase of 4%

·       Semi Detached Properties in Oxford - 281 on the market a year ago compared to 302 on the market now - an increase of 7%

·       Terraced Properties in Oxford - 147 on the market a year ago compared to 166 on the market now - an increase of 13%

·       Flats / Apartments Properties in Oxford  - 173 on the market a year ago compared to 191 on the market now - an increase of 10%

This is evidence of strength in the Oxford housing market that many didn't expect. This may mean property values won't continue to grow at the same extent they have been over the last 12 to 18 months, and in some months (especially in the run up to Christmas and early in the New Year), values might dip slightly. This won't be down to Brexit but a natural re-balancing of the Oxford Property Market – which is good news for everyone.

What we need in Oxford is more home owners AND more Landlords!

I’ve been asked by a number of readers why I haven’t posted following the autumn statement by the Chancellor and in particular commenting on the surprise announcement about the plans to consult on a plan to ban ‘upfront tenant fees as soon as possible’.  Richard and I have been asked to comment by newspapers and so far, we’ve politely declined to comment.  And, here’s why….

Too many other commentators are jumping to doomsday conclusions and predicting the end of the property market as we know it, when they don’t yet know what is being proposed, or when the changes will come into force.

Will it be a tough transition for letting agents? – yes; is it likely to increase costs for landlords? – yes, probably; will it help or hinder the supply of affordable homes in Oxford? – at best it will be neutral, at worst negative.

As readers know I believe that the fundamentals of Oxford property remain strong for investors and owner-occupiers alike.  Capital growth is excellent and I believe will prove resilient come what may; average rental yields remain strong vs national benchmarks, although there is great variability between post-codes and property types (from 3.5% in some areas up to 8% plus for well located houses in multiple occupation).  Savvy investors recognise that they can no longer have a narrow set of investment criteria, instead broadening their horizons to build a portfolio that optimises capital growth and rental yield.

I was delighted to hear that house building is being prioritised via the £2.3bn housing infrastructure fund, and I hope that Oxford benefits early given its minimum requirement for 400 new houses a year (that’s around 3 times the current rate of building).  However, I feel the Government remains too fixated on the home-ownership dream, rather than taking a broader strategic approach that recognises that new rented social housing and new private rental properties are required as well as new homes to buy  – close to 7000 new rental homes are required in Oxford by 2025, way more than can be built no matter how much money is spent. 

Ahead of the detail that is required for informed comment, I am concerned that the government remains anti-landlord in the mistaken belief that the country needs fewer landlords and more home owners.  In fact, what we need in Oxford is more home owners AND more landlords. I believe some excellent landlords may be forced-out of the market by the sheer weight of Government anti-landlord policy, and that others may be put-off further investment as alternative investments become viable once more.  If that happens, the Government will be forced to back-peddle, but by then the damage may already be done. 

The Oxford to Cambridge high-tech highway was is great news, linking the nations pre-eminent knowledge economies.  But jobs need people and people need homes - to rent and buy.  Let's hope that the homes are made available!

Dear Philip Hammond….

Philip,

It’s Bill here.  I thought I’d drop you a line before your big day next week to make a few suggestions on behalf of Oxford’s landlords.  I’ll keep it brief, as I know you are busy, but come on mate you know these suggestions make a lot of sense.

1.       Reverse George’s stamp duty changes – as you know they’ve delivered only half of the expected £700m and they seem to have reduced the number of house sales.  Do something bold like halving the rate for stamp duty and offering a stamp duty holiday early in the New Year.

2.       Remove the 3% stamp duty surcharge on second homes – Oxford needs over 6,800 new rented homes by 2025 and since the surcharge introduction in April fewer homes have sold to landlords meaning we are falling further behind the curve now on both new house building and new rental homes.

3.       Scrap the planned tax relief changes – nationally 440,000 basic-rate tax payers will be forced into the higher tax bracket once these changes to landlord taxation come into force.  These Section 24 changes risk landlords having to pass-on extra costs to tenants in higher rents and further worsening the problem of rent arrears.  Oxford’s landlords have a history of balancing rent increases to look after their tenants, but stamp duty and section 24 risk undermining their returns entirely.

4.       Build more homes in Oxford.  We need 400 new homes per annum just to avoid worsening the supply crisis.  This is pushing Oxford prices ever higher, worsening the affordability gap between average house price and average income, and creating a knock-on higher demand for rental properties.

5.       Introduce a capital gains holiday to encourage landowners to release land for new home building.  At present due to high rates of capital gains tax, there is little incentive for owners to release land for development.  Work with local planners to identify ideal parcels of land and encourage the landowners to sell via the tax holiday.

Philip, as you know Oxford is ranked 5^th Nationally for gross value-added, and is experiencing strong population growth reflecting it’s attractiveness for people in terms of employment, cultural arts and its knowledge based economy.  Oxford’s landlords invest for the long-term, free them to continue to look after their tenants interests, to re-invest returns in the fabric of their properties, and allow them a reasonable long-term return on investment.  You won’t regret it!

Kind regards,

Bill

Private Renting set to grow by 6,800 Oxford households by 2025

During a property viewing recently, a landlord brought up the subject of a report he had read from the Royal Institution of Chartered Surveyors (RICS) and PricewaterhouseCoopers (PwC) that stated almost 1.8m new rental homes are needed by 2025 to keep up with current demand from tenants.

If RICS and PwC are correct, what does it mean for Oxford? The fact is, as a country, we are facing a precarious rental shortage and need to get Oxford building in a way that benefits a cross-section of society, not just the fortunate few. In my opinion the Chancellor of the Exchequer should to drop the higher stamp duty tax on buy to let purchases and ease the pressure on the rental market.

Of the 58,700 households in Oxford, currently 41,400 tenants live in 16,000 private rented properties. If we apportion the 1.8m households that RICS said will be needed equally around the Country, that means in nine years’ time, the number of rental properties in Oxford needs to rise by 6,800 (i.e. 42.8%),  taking the total number of rented properties in the city to 22,800.

That means Oxford landlords need to buy around 800 properties a year between now and 2025 to meet demand – because according to my calculations, an additional 17,700 people will want to live in those 'additional' Oxford rental properties.  So why is the government penalising landlords?

Thankfully the new housing minister Gavin Barwell has ensured Teresa May's new administration doesn’t have the singular laser-like focus of only home ownership to solve our housing issues. The private rented sector became a stooge under David Cameron's watch and still, with increasingly unaffordable Oxford house prices, many new Oxford households will be relying on the rental sector in the future for housing. I can only say, Westminster must put in place the measures that will allow the rental sector to flourish. Any restrictions on the supply of rental property will push up rents (bad news for tenants), further side-lining those members of Oxford society who are already struggling. Let's hope this new Government continues to see the contribution landlords make to an integrated housing strategy, buying precious time for house building to catch-up with demand.

Is the government about to introduce stricter affordability tests for buy to let borrowing by Oxford’s landlords?

Regular readers will know that I believe that the recent and planned increase in taxes on buy to let transactions have the potential to undermine the achievement of 6,800 additional rental properties needed in Oxford by 2025 (the stamp duty surcharge since April 2016 and the forthcoming restrictions on interest rate relief).

Today’s headlines suggest that the forthcoming autumn statement will grant new powers to the Bank of England to mandate similar stringent controls on buy to let lending to ensure mortgages are affordable in the event of interest rates rising.  This stress-testing has already been applied for owner-occupiers, but does it have the potential to exclude middle-class investors from the Oxford buy to let market in the future?

Under the plans, affordability checks will be introduced with borrowers having to prove they can make a profit of 25% from rental payments, even if interest rates rise.  For example, an Oxford investor with a £200,000 interest-only mortgage borrowing at a rate of 1.79% today would currently have monthly mortgage payments of £299.  However, should interest rates rise to 5.5% the mortgage payments will rise to £917 meaning that the borrower would need to charge rent of at least £1,146 per month to be approved for a mortgage in the future (probably from April 2017).

So what difference will this make to an Oxford landlord buying a new ‘average’ property as a buy to let?  As our readers know returns on Oxford property come from primarily two sources – rental yield and strong capital appreciation (i.e. properties are increasing in value strongly year on year).  However, the proposed stress test will only take account of rental yield, which typically builds over-time, reflecting the fact that Oxford property prices are high.  For an average property the landlord will buy at around £385,000.  Assuming he/she puts down a deposit of 30% and has a loan to value (LTV) of 70% he/she will borrow £269,500.  Today the mortgage repayments will be £396.  Under the new stress-test at 5.5% they would be £1,235 and require a rent of £1,544 per calendar month.  That is around £170 pcm above the current average rent achievable.  To match the new affordability criteria the landlord would need a further £28,875 deposit (or 37.5% of the purchase price).

For many professional landlords, their established portfolios providing a strong asset base, meaning these changes will make little difference.  But for local people wanting to invest their savings in property to achieve a decent return, it will make the entry cost that much higher, and for some may prove unaffordable.

Increasingly, I am being asked by landlords to help them plan their investments, targeting purchases to optimise yield or capital growth.  I believe the Government focus on buy to let makes advanced careful investment planning more important than ever.  For the Government to be undermining buy to let returns by removing mortgage interest relief and then to add on-top a further affordability test seems unfair, but with careful planning Oxford still offers great return on investment.

A quarter of Oxford buy to let landlords to quit?

According to a survey of 1,000 buy to let investors by the Residential Landlords’ Association (RLA), around a quarter are saying they will quit the private rental sector because of tas changes planned for April.

The planned restrictions on claiming mortgage interest relief as a cost of business which will be introduced from April 2017 is undermining the financial viability of buy to let investments.

Regular readers will know that I have identified that Oxford requires some 6,800 new homes in the private rented sector over the next 9 years, and that the Government’s raid on buy to let landlord’s risks a period of great disruption for tenants if landlord’s turn to short-term holiday lets as an alternative, or if they sell their properties to owner-occupiers who can afford them. 

The impact could be a reduction in the supply of private rented properties in Oxford at the very time a further 6,800 are needed.  That could mean nearly 18,000 people being unable to live in Oxford the UK’s 8^th fastest growing City!

For how long can the Government focus solely on the availability of homes for owner-occupiers to purchase rather than all facets of supply – social housing, private rented homes and owner-occupied homes.  Each aspect of the housing mix needs developing, and undermining any one could have severe and unexpected consequences.

What makes a place a good bet for Buy to Let, and how does Oxford stack-up?

Since the millennium, the proportion of households renting privately has grown from 10% to 19%.  But which towns and cities should investors look to for high levels of rental demand and future rental growth? Which demographic and economic indicators are best at predicting performance? 

The Dataloft PRS Squared Index monitors key indicators for 50 towns and cities across the UK to help predict performance and identifies four key indicators:

1.     A strong local economy is best judged through local earnings and job growth. The airport towns of Luton and Crawley (for Gatwick) have seen the strongest earnings growth over the last few years.  In Oxford, Kidlington is performing well reflecting the investment in Oxford Parkway station.

2.     Nurturing new businesses can be judged in multiple ways, for example Cambridge, Aberdeen and Aldershot are top of the league for new patents per head of the population. Oxford ranks fifth in UK for gross value-add (GVA) with its top 100 employers accounting for 60% of employment.

3.     Demographic growth data tells us a lot about the scale and strength of the rental market. Is the population growing? How about the number of young professionals, the Holy Grail for rental demand?  University towns do well on this measure, particularly those with strong research facilities that hold onto students well beyond graduation. Cambridge and Oxford rank highest for locations with a young demographic (aged 20 to 44 years), with 32% of Oxford’s population being aged between 18 and 39 yrs.

4.     Affordability is another crunch factor for rental demand. In places where house prices are particularly high relative to earnings, more people will stay longer in the rental market. London is our nation’s primary example of overstretched affordability, but Oxford rivals London, taking over 50% of household gross earnings to meet mortgage payments for the average house price.  At present some 30% of the population live in rented accommodation

Dataloft has devised a 4-part framework for assessing and weighting the complex web of factors that affect rental demand. Oxford performs strongly vs each criteria, confirming Oxford’s long-term attractiveness for landlord investment.  However, the continued strong property price growth and some reduced growth in rents means that rental yields can take time to build, meaning that savvy landlords carefully plan their investments prior to targeting investments to achieve their financial objectives.

House Prices in Oxford rise by more than 18% in the last 18 months

Over the last six weeks, property values in the Oxford City Council area rose by 6.2%, to leave annual price growth also at 6.2%. These rises compare well to the national figures where property prices across the UK saw an uplift of 0.42%, meaning the annual property values across the Country are 8.3% higher.

Looking at the figures for the last 18 months shows Oxford house prices are 18.1% higher, compared to the national average figure of 13.6% higher.  Over the last 18 months, in the Oxford City Council area, the best performing type of property was the semi, which outperformed the area average by 0.78% whilst the worst performing type was the apartment, which under-performed the area average by 1.42%.

That difference doesn’t sound that much, but remember two things, this is only over eighteen months and the ‘spread’ of 2.2% (the difference between the semi at +0.78% and apartments at -1.42%) converts into a few thousand pounds disparity, when you consider the average price paid for a semi-detached property in Oxford itself over the last 12 months was £480,000 and the average price paid for an Oxford apartment was £310,000 over the same time frame.

So how has each property types performed? Over the last 18 months in Oxford:

·       Overall Average:          +18.1%

·       Detached:                      +18.1%

·       Semi Detached:            +19.0%

·       Terraced:                       +18.6%

·       Apartments:                  +16.4%

When I looked at the month-by-month figures for the area, you can quite clearly see there is a slight tempering of the Oxford property market over these last few months. I have mentioned in previous articles that the number of properties on the market in Oxford has increased this summer, something that hasn’t happened since 2008. Greater choice for buyers usually means that top prices won’t be achieved on every Oxford property. You see, some of that growth in Oxford property values throughout early 2016 may have come about because of a surge in house purchase activity, an indirect result of the increase in stamp duty on second homes from April, thus providing a temporary boost to prices.

Overall, I believe that sellers need to pull out the stops to ‘dress’ their house for sale, to ensure that it is presented as strongly as possible in a more competitive market.  To help I recently published an eBook ‘The Ultimate Guide To Sell Your Home – How to sell quicker for more in Oxford. 

How do university cities compare for property investment?

Because of their international reputations for academic excellence and rivalry, Oxford and Cambridge are often compared to each other.  With Oxford university recently confirmed as the top UK and Global University rankings, Oxford currently has the bragging rights, but does that hold true for property investors?

Most property investors invest close to where they live or in a single geographical location that they feel they know well.  Investors become loyal to an area, particularly where their investments have experienced a period of strong performance.  In any area there is an ebb and flow of investment returns, and property investment rewards long-term investment.  As property prices and rental values rise over time, rental yields improve, progressively supplementing capital growth to drive up returns.  The new stamp duty supplement on second homes and next year’s changes to the tax treatment of mortgage interest payments, the costs of new investments are higher for landlords, and should be taken account of when forecasting investment returns.  These changes look most likely to dissuade speculative investors.  Professional investors will forecast returns over 5 and 10 years and will compare those return to alternative investments available to them.  But should they also consider widening their investment geographically and broadening the type of property in which they invest?

At face value Oxford and Cambridge are comparable property markets.  Over all OX (Oxford) post codes the average earnings of people is £22,987 vs. £21,731 over all CB (Cambridge) post codes.  Across the same post codes the average property value in OX post codes is £385,300 and in CB post codes £369,500.  So on face value bragging rights remain with Oxford!  Or do they?  A key measure of a property market is the price to earnings ratio – for owner occupiers the lower the ratio the more affordable the market is.  For an investor landlord, markets are often more attractive where the ratio is high.  That’s because fewer residents can afford to buy a property, increasing demand for private rented homes.  At the aggregate level, Cambridge has a price to earnings ratio of 17 with Oxford at 16.8.  So virtually identical right?

I thought I’d dig a little deeper and narrow the comparison to the central post codes for each City as it is those post codes that most interest buy to let investors and where demand is strongest.  Here the picture diverges.  In Cambridge the average earnings in the central post codes is £30,906 compared to Oxford at £20,076.  That’s 52% higher average earnings in Cambridge.  The average property price in Cambridge is £488,520 vs Oxford at £453,560.  That’s just 8% difference.  So the difference in the price to earnings ratio is substantial with Cambridge being 16.0 vs Oxford at 22.6.  This identifies a stark difference in the affordability of property between the Cities, and goes someway to explaining the continued attractiveness of Oxford to investor landlords.

Over recent years Cambridge has offered investors with a superior return on investment.  As I wrote recently, the latest LendInvest survey shows that Cambridge has offered substantial increases in the capital value of properties over the last 6 years (9% vs 5.8% for Oxford), mirroring the increases that Oxford experienced between 2008 and 2014.  Oxford has continued to offer the better rental yield (5.5% vs 5.1% for Cambridge), but overall Cambridge has offered the better short-term returns 14.1% return on investment vs. 11.3% for Oxford.  However, the affordability ‘gap’ in Oxford points to a better more stable long-term investment proposition.

Increasingly, I am being asked by my landlord clients to advise them on how they should alter their portfolio to optimise their medium and long-term returns in Oxford.  The best portfolios give exposure to the breadth of Oxford demand, including the student market and the growing number of young professionals who want to live and work in the City.  I then work with these clients to assist them to source new properties and divest property as necessary to re-shape their portfolio.  This demonstrates the need for professional investors to properly plan their portfolio and accurately forecast investment returns.

942% - Rise in Oxford Property Prices since 1981

Roll the clock back 35 years to 1981.  Mrs. Thatcher was Prime Minister, we had a Royal Wedding, England won the Ashes and Bucks Fizz won Eurovision with ‘Making your Mind up’.   Haven’t things changed.  The number of homeowners and property investors who said they wish they had hindsight and bought up every house in Oxford all those years ago, especially when you consider what has happened to Oxford property values,

Oxford Property Values since 1981 have risen by 942%.

Not bad when you consider inflation over the same time period has been 271.9%, meaning in real terms (i.e. after inflation), property values in Oxford are 670.1% higher.   It’s no wonder people can’t afford to buy property anymore and landlords are attracted by bricks and mortar. Yet the changes to the Oxford Property market run much deeper increases in value.  No one could have predicted how the property market has changed in Oxford over the last 30 years.

Looking at the Local Authority data for Oxford City Council in 1981, 29.3% of Oxford people lived in a Council House, whilst today its 21.4% ... a drop which can in part be attributed to Margaret Thatcher allowing Council tenants the right to buy their Council House.  The private rental sector since 1981 has, as one would have expected, also changed.  The proportion of properties privately rented in the Oxford area (i.e. through a private landlord or a letting agency) has seen quite an increase, rising from 18.6% to 28.2% of all domestic property.

So, let us consider those people who own their own home, surely that has had a massive drop?  In 1981, the proportion of people who lived in the Oxford City Council area who owned their own home was 51.9% and today it’s 46.7%. Not the seismic change most of you were probably expecting but a material reduction nonetheless.

Home ownership in the 1980’s and 1990’s in Oxford did in fact rise, but as I have discussed in previous articles in the ‘Oxford Property Market Blog’, that was because nearly every Council tenant was buying their council house. Now there are too few Council houses for the younger generation to move into nor sufficient properties provided by social landlords to make up the shortfall.  This means that the people who would otherwise occupy such properties have no choice but to privately rent.

The Oxford property market is constantly changing but current imbalance between supply and demand for property means that buy to let investment in Oxford is over-reliant on house price growth, with rental yield having been progressively eroded by the ever increasing purchase price.  I see the changes in tax and landlord & tenant law in a different perspective to many commentators – I believe yield should and will become more important as landlords experience the consequential deterioration in their returns.  Some may need to change their buy to let targets, their financing methodology or broaden their portfolio geographically (e.g. look at Kidlington, Bicester or other satellite towns) and by type (e.g. ensuring you have exposure to Oxford’s student demand, and the growth in demand for HMO’s from young professionals).

Like Bucks Fizz said in their song, it’s time to make your mind up. The advice I give to my landlords, and also to you my blog reading friends is this; the changes to come will make some landlords panic, providing a more stable platform for knowledgeable and wise and well advised Oxford landlords to thrive.