Oxford rents rise by 22.6% since 2005

The Oxford Property Market has been particularly fascinating over the last 12 years when we consider what has happened to Oxford rents and house prices.

There’s currently much speculation about what will happen to the rental property market during the Brexit negotiation. I believe we must look what happened in the 2008/9 credit crunch (and what has happened since) to judge rationally the possible ramifications for long-term investors in the Oxford property market. An important, yet overlooked measure is the performance of rental income vs house prices (i.e. the resultant yields over time). In Oxford (as for the rest of Great Britain), notwithstanding a slight drop in 2008 and 2009, property rentals have been gradually and consistently increasing.

The income from rentals has been progressively increasing over the last 12 years. Today, they are on average 22.6% higher than they were at the beginning of 2005. In fact, over the last five years, the average growth has been 2.4% per annum. However, the observant readers will be noting that we are ignoring an important factor – our friend inflation.

Turn the clock back to 2005, and take a property being rented for say £900 a month hat is still being rented at £900 a month today, in Spring of 2017. While the landlord is not getting any less income, £900 is no longer worth as much. Let me explain, in 2005, £900 may have bought a two-week 4* holiday in Italy. Yet, holidays have increased in line with inflation (which has been 38.5% since 2005), so our holiday would cost today £1,246 (£900 + 38.5% inflation = £1,246). Therefore, the landlord could no longer afford the same holiday, even though they have the same amount in pound notes from their rental property.

This means, when we compare rents in Oxford to inflation since 2005, Oxford landlords are worse off today, when they receive their monthly rental income, than they were in 2005 by 15.9% in real terms (rents increased by 22.6% since 2005, less the 38.5% inflation since 2005 – net affect 15.9% drop). 

However, rental income is not the only way that landlords generate money from property as property values typically increase over time. Although in the short term, cash flows are diminishing, many Oxford landlords will be content to off-set that for the increase in capital value.

Property values in Oxford have risen by 77.3% since 2005

This equates to a very strong 6.44% average increase per annum over the last 12 years. This will make those Oxford landlords and investors feel a little better about the information regarding rents after inflation.  6.44% annual return compares well when considered vs alternative financial investments over the same period.

Looking forward, the prospects of making easy money on buy to let in Oxford have diminished.

If you are investing in the Oxford property market, do your homework and do it well. While some yields may look attractive, there are properties in many areas that do not have the solid fundamentals in place to sustain them. If you are looking for capital growth, you might be surprised where the hidden gems really are. Take advice, even ask your agent for a portfolio analysis like I offer my landlords.