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.

Kidlington – Reasons to be cheerful whether you are buying or selling

With its easy access to London and the Midlands via Oxford Parkway train station, and public transport links to Central Oxford, Kidlington is now one of the top 5 areas in the UK where houses are bought by City leavers.  According to a recent study, 50% of all property transactions completed are now to people moving out of a City, with London being a popular source location.



Over the last 12 months close to 95,000 people have decided to move out of London, up 16% on 2016, with 30% of leavers being between 20 and 29 years of age.



Many of these movers are cashing-in on the value of their City properties, and moving to more rural and cheaper locations.  With many using the move to change their work life balance, while others being motivated by ease of commuting links to where they have moved from.



Key attractions are a sense of community, period properties and access to good schools.  Many movers are shunning the traditional commuter towns where everyone is there for commuter convenience for authentic towns where people choose to live for a variety of reasons.



The slowing market in London presents a challenge for Kidlington and other popular places with City leavers.  There are currently 20% more homes for sale in London that at this time last year.  This is an example of how the Oxford market is affected by the Capital, and has contributed to the fall in transaction volumes across Oxford.

Many City leavers choose to rent initially in their chosen location, to enable them to make the move more quickly, confirm their preference and look for suitable properties to buy. 



So, how is the local Kidlington market performing?  Well, transactions over the last 12 months are down by 5% on the previous year at 372 transactions in total.  Of those 13% were for flats at an average price of £210,274, and just 4% of the market was new build.  Terraced houses averaged £306,720; semi-detached £349,353; and, detached homes £481,612.  The most expensive flat sold over the last 12 months changed hands for £382,950 and the most expensive house for £1,405,000.  Overall across the last 12 months prices have held firm making Kidlington look like better value when compared against the rest of Oxford where prices are up 6% on the prior 12-month period.  On average a home in OX5 is 16% cheaper than the average for Oxford as a whole, and accounts for around 12.5% of Oxford total transactions.



Many City leavers rent initially in their chosen location, enabling them to make the move more quickly, confirm their preferences and look for suitable properties to buy. 



Recognising this source of demand is important when marketing your Kidlington property, which also remains popular with families struggling to trade-up to larger properties in Oxford itself.

Kidlington is one of 10 areas in the UK where city-leavers are buying property

With its easy access to London and the Midlands via Oxford Parkway train station, and public transport links to Central Oxford, Kidlington is now one of the top 5 areas in the UK where houses are bought by City leavers.  According to Hamptons, 50% of all property transactions completed.

Over the last 12 months close to 95,000 people have decided to move out of London over the last 12 months, up 16% on 2016, with 30% of leavers being between 20 and 29 years of age.

Many of these movers are cashing-in on the value of their City properties, and moving to more rural and cheaper locations.  With many using the move to change their work life balance, while others being motivated by ease of commuting links to where they have moved from.

Key attractions are a sense of community, period properties and access to good schools.  Many movers are shunning the traditional commuter towns where everyone is there for commuter convenience for authentic towns where people choose to live for a variety of reasons.

The slowing market in London presents a challenge for Kidlington and other popular places with City leavers.  There are currently 20% more homes for sale in London that at this time last year.  This is an example of how the Oxford market is affected by the Capital, and has contributed to the fall in transaction volumes across Oxford.

Many City leavers choose to rent initially in their chosen location, to enable them to make the move more quickly, confirm their preference and look for suitable properties to buy.  Around 5% end up reviewing their decision, moving back to the City they have left.  But, for the majority it reinforces their decision and enables them to find the right long-term home.

Recognising this source of demand is important when marketing your Kidlington property, which also remains popular with families struggling to trade-up to larger properties in Oxford itself.

Moving from a 2 bed Oxford Property to a 4 bed will cost you £1,067 pm

Moving to a bigger home is something Oxford people with growing young families aspire to. Last week I considered the general trend towards increased demand for 3 and 4 bedroom properties as ‘generation rent’ start planning families.  This week I look at the cost involved in buying a larger Oxford property.  Many people in two bedroom homes move to a three-bedroom home and some even make the jump to a four-bed home. Bigger homes, especially three-bed Oxford homes are much in demand and it can be a costly move.

If you live in Oxford in a two-bedroom property and wish to move to a four-bedroom house in Oxford, you would need to spend an additional £270,251 (or £1,067.49 pm in mortgage payments (based on the UK Bank average standard variable rate)). However, going straight to a four bed from a two-bed home is quite rare as most people jump from a two to three-bedroom home, then later in life, from a three to four-bedroom home.

So, after being asked my thoughts on moving home in Oxford by a friend recently, I did a little analysis of the local property market. To start with, let’s see what the average property price is for an Oxford home by the number of bedrooms it has.

 I then decided to calculate what it would cost to make the jump upmarket from one bedroom to two bedrooms, two to three bedrooms etc, etc, both in actual money and in mortgage payments (using the current standard variable rate of UK Banks of 4.74%).

There are some interesting jumps in costs when moving upmarket as an Oxford buyer. The cost of moving from one to two beds, and two to three beds is relatively reasonable, whilst the jump from three to four beds in Oxford is quite high and therefore financially prohibitive for most families. This helps provide a partial explanation as to why some four-bed properties are currently taking slightly longer to sell.  With Oxford already being one of the most expensive Cities for house affordability in the UK, it is not surprising that the properties at the top of the market prove unaffordable for many.

As an aside, there is a lesson here for all my blog readers. You can quite clearly see why the larger 4 and 5 bed properties don’t offer the best returns for buy to let landlords. Simply put the monthly finance costs and rents achieved don’t match up so well (i.e. a mortgage for a 4 bed home in Oxford would cost you 51.40% more when compared to a 3 bed mortgage, but the jump in rent would be a lot less than that). I don’t wish to be dismissive about the solidity of investing in larger properties because it does depend on your circumstances. Four bedroom properties sometimes offer other advantages, however, it is clear to see why the 3 bed family market is in such demand, and why I forecast that to continue over the coming 3 to 5 years.

What is the next big trend in Oxford rentals

Over the last few weeks I’ve been asked on three separate occasions by Oxford buy to let landlords what trends they should be aware of when considering their next buy to let investment in the city.

One trend that is certainly emerging in Oxford is rising demand for larger properties, by couples with young or growing families.  Typically, these couples are already renting, but out-growing their one or two-bedroom property, and targeting more space to grow into.  They are members of a growing group of young parents who have always rented their homes, and who either prefer to continue to rent, or who remain priced-out of the Oxford market.

Looking at Oxford’s housing mix, shows that 3 and 4-bedroom properties account for just over 50% of all Oxford properties, suggesting that availability shouldn’t be a problem.

However, this is a highly competitive sector of the market.  The most active purchasers of Oxford 3-bedroom properties are in their late-20s or early to mid-30s, they may already own their own home or this might be their first purchase, they are parents with growing families or couples planning to start a family soon. Many are seeking a perfect balance of access to decent primary schools, commutability, access to an open space and general liveability by which I mean access to supermarkets, pubs and restaurants. For landlords looking to buy 3 and 4-bed Oxford properties, they face stiff competition from these 20/30 something families, making the three-bedroom Oxford home massively in demand, often attracting spirited offers and selling within weeks of listing.

This mix of homebuyers and landlords is creating a pressure point in the Oxford property market, which reduces the availability of 3 and 4-bedroom properties for young families with the same nees as those described above, but who either have to rent or prefer to rent rather than buy.  The competition for the purchase of these properties is maintaining pressure on prices, which in turn applies pressure to rental yields making some buy to let landlords think twice about investing in this in-demand sector of the market.  I firmly believe that demand will outstrip supply over the coming years and that as a result rental yields will improve progressively, making early investment in this sector attractive.  I also believe that this sector will be less impacted by uncertainty resulting from domestic politics and Brexit, given that demand will be dominated by UK nationals and long-term residents.

Next week I will examine the costs associated with buying an additional bedroom in the Oxford market.  For renters, however, the challenge is one of availability. 

If you are an Oxford landlord, please do call me and I will show you areas with decent returns where you aren’t in so much competition with young Oxford family homebuyers to exploit this future growth market.

Oxford house prices matching National average growth rate

Hometrack has release its UK Home Price Index for August 2017, and on first reading it appears to include relatively positive news for Oxford home owners.  Nationally, the average rate of house price inflation is 3.8% which Oxford is matching exactly.  However, closer inspection shows that the National average is being dragged back by London which achieved just 1.9% year of year growth to August 2017.

Whilst Oxford is performing well in comparison to Cambridge (2.8%), Bristol (3.4%) and other major University cities such as Cardiff (3.2%), Sheffield (2.7%) and Liverpool (3.8%), overall Oxford home prices are rising more slowly than 10 other cities in the Hometrack 20 City Index.

Delving further it can be seen that cities like Oxford, that have enjoyed strong growth over recent years, and where average prices have risen strongly, are struggling relative to the best performing cities such as Manchester (7.3%), Birmingham (6.7%) and Edinburgh (6.6%).  Indeed, the 3 most expensive cities in the index London (£489,100), Cambridge (£434,500) and Oxford (£425,800) are each in the lower half of the table, with oxford out-performing both Cambridge and London.

So, is this good news or bad news for Oxford’s home owners?  Well it really depends on circumstance. 

With new build homes struggling to exceed 1% of the total transactions completed over the last 12 months, for first-time buyers, Hometrack’s statistics offer bad news.  Despite the total number of house purchase transactions being down over 20% compared to the previous 12-month period, there remains inflationary pressures, which is widening the affordability gap for first-time buyers.

For Oxford home-owners, the news is more positive.  Despite transaction volumes falling substantially, their homes continue to rise in value ahead of the general rate of inflation.  However, with the market as a whole being generally slower, those planning their next move may need to be patient to find a buyer and to find their ideal next property.

Careful research into Land Registry data for Oxford also shows that the price increments between Flats, terraced, semi-detached and detached homes are high.  Over the last 12 months’ flats have averaged £280,276, terraced houses are on average 36.7% higher (£383,104); semi-detached are just 7% higher than terraced (£410,615) but detached houses are a staggering 46.4% higher than semi-detached (£600,934).  This means that for many who own an Oxford property, it is difficult to ‘trade-up’ to larger properties.  And, the lack of new build means that for many they must either rent to live in Oxford, or live in more affordable places like Bicester, Didcot and Abingdon and commute into Oxford for work.

Oxford Buy-to-Let Return / Yields 3% to 7.1% a year

The mind-set and tactics you employ to buy your first Oxford buy to let property needs to be different to the tactics and methodology of buying a home for yourself to live in. The main difference is when purchasing your own property, you may well pay a little more to get the home you (and your family) want. When buying for your own use, you will often buy at the top end of your budget.

With a buy to let property, your goal is a higher rental return – a higher price doesn’t always equate to higher monthly returns – in fact quite the opposite. Less expensive Oxford properties can bring in bigger monthly returns. Most landlords use the phrase ‘yield’ instead of monthly return. To calculate the gross yield on a buy to let property one basically takes the monthly rent, multiplies it by 12 to get the annual rent and then divides it by the value of the property.

If an Oxford buy to let landlord has the decision of two properties that command the same amount of monthly rent, the landlord can increase their rental yield by selecting the lower priced property.

To give you an idea of the sort of returns in Oxford...

Now of course these are averages but they provide a fair representation of the gross yields you can expect in the Oxford area.

With the total amount of buy to let mortgages amounting to £199,310,614,000 in the country, landlords need to be aware of the investment performance of their property, especially in this era of tax increases and tax relief reductions.

However, before everyone in Oxford starts selling their upmarket properties and buying cheap ones, yield isn’t the only factor to consider when deciding on which Oxford buy to let property to buy.  Void periods (i.e. the time when there isn’t a tenant in the property between tenancies) are an important factor and those properties at the cheaper end of the rental spectrum can suffer higher void periods.  Apartments can also have service charges and ground rents that aren’t accounted for in the gross yields. Landlords also make money if the value of the property goes up. In Oxford, because property is expensive, landlords should consider the total return on investment, considering both the net yield (the gross yield less other expenses e.g. service charges) and the increase in property values.

In Oxford, for example, over the last 20 years, the average price paid for the four different types of Oxford property have changed as follows:

·       Oxford Detached Properties have increased in value by 269.5%  

·       Oxford Semi-Detached Properties have increased in value by 284.2%

·       Oxford Terraced Properties have increased in value by 274.3% 

·       Oxford Apartments have increased in value by 261.8%

It is very much a balancing act of yield, capital growth and void periods when buying in Oxford. Every landlord’s investment strategy is unique to them. If you would like a fresh pair of eyes to look at your portfolio, be you a private landlord that doesn’t use a letting agent or a landlord that uses one of my competitors – then feel free to drop in and let’s have a chat. What have you got to lose? 30 minutes and my tea making skills are legendary!

More renting than mortgaged households within eight years

A cultural shift in home ownership is happening before our eyes.

According to a NatWest economist, by 2025, the number of mortgaged households in the UK will be just under 6m, while the number of households in private rental accommodation will be a whisker more, at 6m.  Sebastian Burnside says the cross-over will happen in late 2024.

Burnside is reported by Property Industry Eye as saying : “We think it’s a fairly comfortable bet that by 2025 we will have more households renting privately than owning their homes with a mortgage, which is a big cultural shift for a country like the UK and something that’s being driven by those underlying demographics.”

There are already more people owning a home outright than people buying with a mortgage, and the number of outright home owners is still growing.  Since 2013, outright home ownership has been the biggest form of housing tenure in the UK. By 2024, about 9m households will own their homes outright. 

Oxford Landlords – inform yourself about the new Buy to let mortgage lending guidelines

Oxford’s buy to let investors with multiple properties in Oxford alone could risk being turned down for future mortgages under the restricted guidelines being introduced in two weeks’ time.  Many Oxford landlords are unaware of the changes being introduced and may be well advised to consider remortgaging before the new rules come into force.

The new Prudential Regulation Authority (PRA) guidelines to mortgage lenders apply to those borrowers with four or more buy to let properties anywhere in the UK.  In future, Oxford’s ‘portfolio landlords’ - will have to show full financial information for every property in their portfolio, rather than simply providing top-line profits. 

What this means in practice is that, among other factors, lenders will look at the equity in each property, individual rental profits (‘yields’) and the geographical spread of a portfolio i.e. the extent to which the portfolio is exposed to just Oxford’s local property markets rather than Oxford and other markets with different market characteristics? The changes seem likely to make borrowing additional funds more time consuming, especially for Oxford landlords with larger portfolios just imagine having to assess forty properties individually when trying to refinance mortgage debt. It could also result in some of Oxford’s landlords being turned down for new finance even though their portfolio is unchanged from when they last raised finance. This seems likely to be especially the case where the landlord is heavily mortgaged or overly exposed to the Oxford market alone.

Because each lender has been allowed to interpret how the new requirements should change their lending processes, there is growing concern in Oxford’s buy to let community over the implementation of the new guidelines and the extent to which lenders are prepared and how consistently the new guidelines are introduced.

The changes, which aim to ensure Oxford borrowers are not over-exposed if economic conditions deteriorate, or if the local market stalls, build on ‘stress tests’ recently introduced by lenders who now demand rental income meets at least 125 per cent of mortgage costs. Lenders also already check that borrowers can afford to repay the loan regularly even if interest rates soar to 5.5 per cent.

Portfolio landlords in Oxford like their counter parts elsewhere are being targeted by the PRA because it has found that arrears rates increase as portfolio size increases. I expect the impact of these changes for Oxford’s portfolio landlords to mirror the impact of the 2015 Mortgage Market Review for owner-occupiers.  Mortgages will be tougher to secure particularly for landlords who do not prepare in advance and/or are solely exposed to Oxford property. Buy to let landlords whose portfolio is geographically concentrated risk being turned down for future finance, and should use the next two weeks to speak with their mortgage broker about refinancing, to understand the new approach, and possibly to secure new funds under the current lending assessment processes.

As mortgage interest rate relief is progressively phased out over the coming 3 to 4 years, and with the Bank of England providing clear direction that interest rates will most likely rise this calendar year, it is important that Oxford landlords do all they can as early as possible to reduce the cost of finance to off-set the increased costs impacting their business.