Oxford is a top 3 city for house prices since 2008

The latest Hometrack city index report includes an interesting analysis of how house prices have recovered since the financial crisis in 2008.  Three of the 20 cities included in the regular analysis - Belfast, Aberdeen and Liverpool are all still below their 2008 levels at -28%, -3% ad -1% respectively.  Joining them in the bottom 5 are Glasgow just 1% up over 10 years and Newcastle +3%.

Oxford comes in 3rd in the list at +55% behind Cambridge (+70%) and London (+65%) and ahead of Bristol (+53%) and Portsmouth (+36%) which complete the top 5 Cities in the index.

It is interesting to note that the top performers are currently experiencing a relative lull in house price growth whereas the poorer performers are top of the current charts for house price growth including Liverpool, Newcastle and Birmingham.

Over the last 3 months Oxford prices have been flat at just 0.1% increase overall, and recording a 0.5% reduction over the last month.  Over the last 12 months Oxford remains in positive territory showing growth of 0.5%.

Cambridge and London each of which have seen some negative pressure over recent months have recovered and move back into positive territory albeit tentatively.  It appears as if Oxford is perhaps following them into a short period of negative growth, albeit less marked, and to date having avoided overall reduction.

The Oxford house sale market is characterised by many available properties, giving buyers choice, with many properties selling below asking price, a trend tha is now apparent via land registry data.  July and August are often subdued months for house prices, so it will be interesting to see how the market reacts as we move into September.

Private rented homes – the key to avoiding a full-blown Oxford housing crisis.

Everyone has an opinion about what’s wrong with the private rented sector (PRS)…some have informed opinions, others seem ill-informed.  Few take time to consider the role played by PRS in the wider property market.  How important is the PRS to the UK housing market?

In 2003, according to data from Shelter, the PRS was 2.55m homes or 11.9% of total UK housing.  By 2014 it had grown to 4.59m or 19.7% of the total UK housing market.  To put that into perspective in 2014 total new building created 112,400 homes or less than half the annual growth of the PRS.  In 2014, the PRS provided 14% more homes than social housing owned by local authorities and housing associations combined!

This goes to show that the PRS is a massively important source of housing supply.  By early 2015 the UK had 5.4m households who relied on the PRS, and according to PwC that is set to rise to a massive 7.2m by 2025 – an increase of one-third. In 2014, 2m private landlords owned and let 4.6m homes.  Based on the same ratio of ownership, an additional 783,000 landlords are needed by 2025 if the demand forecast by PwC is to be serviced effectively.

In 2014, the UK’s private landlords banked £14.2bn.  With demand set to increase by one-third, it is no coincidence that the Exchequer has imposed a stamp duty surcharge on 2^nd homes.

The stats show that our ‘beloved’ politicians are right to want to ingratiate themselves with tenants – they are a large block of voters and one that is growing rapidly in number.  But, the nation needs new and existing landlords to keep investing, or there will be a genuine housing crisis that the public sector has no hope of addressing.  Tenants will not thank politicians for undermining the supply of affordable good quality rental properties.

How does Oxford compare to these national statistics?

In Oxford, according to the 2011 census the PRS accounts for 28% of the total housing stock.  If student households are stripped-out, the PRS still accounts for 26%, meaning it is more significant in our City than is the case nationally.  In Oxford, just 47% of households own their own home vs. a national average of 63% and 21% live in social rented housing vs 18% nationally. 

These statistics are not a surprise in one of the countries least affordable cities.  New build supply is historically weak in Oxford and is a major constraint for both first-time buyers and down-sizers increasing demand for rented homes, and locking-up the housing market respectively.  Over the 4 years to 2015 less than 1,000 net new homes were added to the city an average of just 247 homes per annum or less than 1% per annum. 

Even if this changes materially, the PRS remains strategically important to the City.  Between the census years of 2001 and 2011, the PRS grew by 45% dwarfing the growth of other forms of tenure.  Without a massive increase in new supply, demand pressures will continue to grow making a stable, high-quality PRS critical to avoid a full-blown housing crisis in Oxford.

It appears to me as if Oxford City Council recognises this picture and is focussed on improving standards through licencing of shared houses, and by encouraging landlords and their agents to raise standards.  Inevitably this is increasing costs, but it is a positive, productive policy that raises standards across the City and one which most landlords will respond to positively.

Why is it that Parliament seems to have it in for landlords?

I can understand why the Government and the Bank of England are concerned to ensure mortgage debt remains affordable as interest rates rise to long-term trend norms.  New mortgage lending rules for buy to let are sensible, and make the whole sector more resilient.

However, other changes seem poorly considered and motivated by pure politics rather than any genuine appreciation of the Housing market and the importance of a stable PRS over the years to come.  Too many landlords feel that they are being demonised, and are choosing to stop future investment with others simply divesting altogether.  In some parts of the country the PRS is shrinking at the very time it needs to grow to buy time for a massive expansion of new building.

The political shift towards populism is in danger of disrupting this strategically important sector of the UK’s housing market.  Politicians need to recognise that anti-landlord policy has gone too far.  By all means, rid the sector of rogue landlords, work with professional agents and landlords to raise standards, make client money protection mandatory, make private rented homes safer and encourage higher environmental standards.  But, it is time to stop discouraging new investment and increasing landlord taxes. The vast majority of landlords provide good-quality homes which are badly needed as demand continues to grow.

National and Oxford housing market struggling

Property sales were down by a fifth across the UK during March, and down by 29% in London.

New Land Registry data paints a gloomy picture of the market, showing that the number of transactions completed in March across the UK fell 20.3% annually to 73,977.

The biggest falls were in London where sales were down 29% to 6,180, and in the south-west with a 24% decline to 6,640.

Overall sales in England were down 21.8% to 58,203 on a yearly basis.

The Land Registry data also shows house prices growing at the slowest rate since August 2013, up 3% annually in May to £226,351, a slowdown from the 3.5% annual growth recorded in April.

The largest annual growth was in the east midlands, with prices up 6.3% to £190,216 on average.

London saw the steepest annual fall with average prices down 0.4% to £478,853.

In Oxford transaction volumes are a further 4% down year on year to 2,839 and prices are up just 2% compared to the same period 12 months ago at an average of £421,522.

It seems to me that lower demand is forcing vendors to be more realistic with prices because there are fewer buyers who are prepared to shrug off economic and political uncertainty.  Many Oxford homes are selling only following a price reduction as vendors realign their asking price to a more sensible level, or are completing at a discount on the asking price.

MandatoryElectical Safety Checks for all private rented properties

The Government has announced they will introduce a mandatory requirement for landlords in the private rented sector to ensure electrical installations are inspected every five years. This is part of plans to drive up standards across the PRS and reduce deaths, injuries and fires caused by electrical faults.

While NALS fully supports the introduction of these checks to keep tenants safe, this is another measure from Government that will need to be enforced to be effective. We look forward to seeing more detail on the plans. You can read the full announcement from Secretary of State for Communities, Rt Hon James Brokenshire MP.

As many of you will know Martin & Co predicted this move and has been working with landlords to roll-out electrical safety across our managed portfolio.

More Government meddling on the horizon

Why the Government thinks its interventions in the UK lettings market will be any more successful than its Brexit negotiations is beyond me!  But apparently, it knows best, and will save the day for the many millions of voters who rent their home.

The latest proposal is to mandate 3-year tenancies so that tenants have greater security.  I should make clear up-front, I have nothing against longer tenancy terms, provided that tenants and landlords have equal ability to trigger termination clauses should their own situations change.  In the post-tenant-fee world, the fewer relets a landlord has to navigate the better.  It is at the point of relet that a landlord’s risk is highest, and it is likely to be the point at which applicants will be freer to change their minds loading cost and uncertainty onto the landlord.

Given this is my view, surely I should be supportive of the Government’s policy?  Well, no.  3-year assured shorthold tenancies (AST) can already be agreed.  Many landlords would jump at a tenant requesting a longer-term, and they are completely free to do so already.  Only where the landlord is uncertain about her/his plans for the property would it be seen negatively.  But, how often does a tenant ask for a 3-year term?  In my experience in my own letting agency, almost never.  Is that because they don’t know they could?  Or is it because they want to retain maximum flexibility?

It is current good practice when a tenant or a landlord requests a break clause, for that clause to be ‘mutual’ i.e. applying the legal practice of fairness and balance, it provides each contracting party the flexibility to terminate.  The only time that may not be the case relates to an agreement where the tenant pays rent in advance for several months and where there is a second payment date during the term of the contract e.g. 6-months advanced rent up-front and a further 6-months midway through the tenancy.  In that situation, it is possible that there would be a break clause that only applies to the landlord, protecting their position in the event that further rent was not paid.

The Government is proposing mandated 3-year terms for AST agreements, with break clauses that can be triggered ONLY by the tenant. That will discourage landlords from agreeing to partial advanced rent agreements as it will force them to rely on serving Section 8 notices on non-paying tenants to regain possession of their property – effectively removing the accelerated possession process currently available following the triggering of a termination clause and serving a Section 21 notice.

Many tenants rely on payment of advanced rent to secure a property, particularly where they are unable to pass credit and referencing procedures due to a lack of evidence of ability to afford the rent, or where they are unable to provide a suitable guarantor.

It is also a worrying precedent that the Government is advocating contractual terms which move away from the principle of mutuality, balance, and fairness. It appears that Landlords are less deserving of legal protection than their tenants - I can’t remember a time when a Conservative government was advocating such restrictive social policy, suggesting the centre-ground of UK politics is now firmly left of centre.

Should this misjudged policy be enacted, I believe it will have further consequences for the supply of good-quality rented homes.  Tying-up available rented homes for longer and reducing the absolute number of homes on the market, as good landlords feel that there are easier, less onerous ways for them to invest.  In the meantime, first and second-time buyers will still be excluded from the market by the massive deposits required to access mortgage funds.

How is Oxford performing relative to comparable Cities in SE England?

The average house price in SE England is £323,422, that’s 4.3% compared to the corresponding period 12 months ago.  The average Oxford home is now £420,370 which is up just 2.4%. 

Comparing Oxford to 9 other Cities in the SE of England further illuminates how our City is performing.

The analysis shows that Oxford is not the most expensive City, that accolade goes to Guildford, where prices have increased 4.9% over the last 12 months reaching an average of £452,515 or 7.7% higher than Oxford.  But the best price growth was experienced in Canterbury (7.1%), Chichester (6%) and Winchester (5.4%).  Each of these Cities having experienced an increase in popularity from people seeking to move out of London, whilst retaining good access to the Capital. 

Like Oxford, several Cities have experienced a fall in the volume of completed sales transactions, Oxford is down 2% over the last 12 months, with Guildford, Portsmouth, Reading, Brighton, Milton Keynes and Winchester also experiencing fewer completed house sales.  Only Canterbury and Southampton are in strong growth phases in terms of the volume of completed sales. 

Guildford, Oxford, Reading, Winchester, and Brighton are the top 5 most expensive Cities.  Southampton, Portsmouth, Milton Keynes, and Canterbury continue to offer average prices below £300,000.

The average detached home in Oxford is £609,866 or 18% higher than the SE average.  The average Oxford Semi-detached is £412,182 (22.4% above the SE average), the average Oxford terraced home is £392,061 (41% above SE average) and the average Oxford flat is £285,228 (39.4% above the SE average).

As identified several weeks ago, asking prices for Oxford homes continues to hit all-time highs, however, most properties are selling below asking price with the typical reduction being c5%.  Any review of Rightmove for Oxford will confirm a trend of properties being listed high, with a high proportion being subject to price reductions.  Oxford estate agents bear responsibility for this trend, adopting a policy of list at any price with a view to agreeing on a price reduction later!  This is not serving Oxford vendors well, often delaying sales until a price reduction is secured and placing the property in the wrong Rightmove price banding, meaning potential buyers don’t get to see it as they would had it been listed at the correct price originally.

At Martin & Co we don’t play that game, meaning we sometime lose-out where vendors are ‘dazzled’ by a competitor’s unrealistic valuation.  We know effective sale requires the right people to see the property during the all-important first 4 weeks on market.

And so it begins…Oxford landlords, keep calm and carry on

Analysis published by the property website Home reveals a UK-wide reduction in the number of properties available for rent of 12%.  London is stated to be the worst hit with a fall of 20% in the number of private rented homes.

Home states that there is no evidence yet that the reduced supply has yet resulted in higher yields for landlords.

Regular readers will know that this blog has been predicting unforeseen consequences from Government ant-landlord policy.  The stamp duty surcharge which makes new properties more expensive for landlords to purchase; the progressive reduction of tax relief on mortgage interest payments which reduces the profit landlords achieve from buy to let; and, the forthcoming ban on fees charged to tenants, which is expected to increase costs for landlords are just three examples of recent legislation.  Their combined effect along with daily doom-laden headlines about flat lining property prices, and the reasons why the buy to let gravy train is over is putting pressure on buy to let landlords to sell up and invest elsewhere.

On the face of it, the Home website analysis is another example of doom, adding to the pressure on landlords to sell.  But is it?  Or is it actually an analysis which provides the first evidence that the Government has gone too far?

I have been predicting that the supply of buy to let will fall behind the ever-increasing demand for private rented properties.  Home’s analysis shows that supply of properties is falling across the UK.  With demand for rental properties predicted to rise year on year through to 2025, and with supply falling there can be only one outcome – increased rents.

But, I hear you cry, landlords didn’t increase rents above inflation during the financial crisis, so why will they now?  Quite simply, their costs are being increased due to Government intervention, they feel they are being unfairly singled-out, and will want to protect their financial returns at current levels.  During the financial crisis, landlords recognised they had a responsibility to help struggling families and young adults, now they feel they are being attacked unfairly.

Fortunately, the Government has implemented stamp duty savings and shared ownership models for first time buyers, so those who can’t find or afford rental properties in the future will be able to buy instead.  Well that’s alright then.  Or is it?  No it isn’t.  The Government has done nothing to materially assist young adults to access finance - their student debt, and post-crisis changes to mortgage lending mean few can hope to scrape together the deposit they need, particularly in Southern England hotspots like….let’s think….Oxford!

The cumulative effect of this have serious consequences for young people and families who will not be able to buy and who will increasingly struggle to afford the rent for the homes they require.  We constantly hear from politicians of all persuasions, that the tenant fee ban is ‘progressive’, meaning it will disproportionately benefit lower income people and families.  But the truth is it will not.  The poorest will benefit from a rise in supply of social and affordable housing, and the wealthy will be able to buy property as they always have.  Leaving a broad spread of middle-income people and families being increasingly squeezed, and being forced to spend an ever increasing proportion of their income on accommodation.

As is so often the case, Government have intervened with a popular piece of legislation.  It has been ill-considered, and all attempts by industry bodies and experts has been only selectively embraced.  We all now need to live with the consequences.

So which Oxford landlords will benefit?  Only those who hold onto their properties!  Over the last week I have demonstrated to 5 landlords of Martin & Co the true returns that their properties are generating.  They have ranged from 10% per annum to a whopping 18.5% per annum.  That’s an 18.5% annual return on investment at a tie when base rates remain at historic lows.  And, it is not a risky 18.5% it is a solid, reliable and asset-backed 18.5%.  Why would anyone want to sell such a great investment?

I believe that all Oxford landlords will benefit from consistent and strong return over the coming 5 years.  And, I believe yields will stabilise despite the changes that will increase costs.  Oxford already has too few private rented properties, and fewer landlords are expanding their portfolios.  This will result in rents rising as supply pressures build.  The sensible will hold their nerve, keep calm and weather the short-term storm.

Oxford homes selling below asking price

Both Oxford and London saw property sellers accepting offers on average of 4.8% below the asking price in the first quarter of this year, according to the latest data from Hometrack, up from 2016’s less than 2% average discount in the two cities.

In Cambridge, which had once seen homes go for 1% more than asking price back in 2016, prices were being lowered by an average 3%, followed by Southampton and Portsmouth which saw a similar decrease.

The report says: “Market conditions are weakening in southeastern England but the size of discounts is less severe as prices are adjusting in weaker demand rather than as a result of adverse economic impacts. However, stretched affordability, Brexit uncertainty and multiple tax changes have impacted demand and mean sellers having to accept larger discounts to asking prices.”

I have suspected that evidence of houses selling below their asking prices was due to come through land registry data, and Hometrack’s report confirms this.  Asking prices across Oxford remain high reflecting sellers ambitions, but the market is seeing buyers in the ascendancy and prices achieved are under pressure.

For my Landlord readers, those planning to expand their portfolio should be prepared to make a ‘cheeky offer’ below asking price.   

MP leading a national campaign to mandate electrical appliance testing in ALL rented properties

Government statistics for 2016-17 show that a faulty electrical appliance was the second largest cause of accidental house fires in the UK and  while Scotland adopted new mandatory electrical testing standards for rented properties in 2015 there are no legal requirements for landlords to carry out regular PAT tests in the rest of the UK.  This despite landlords being responsible for ensuring electrical installation and appliances are safe and being open to criminal charges should they fail to prove they took steps to confirm their safety following the death or injury of a tenant resulting from for example a fire caused by an appliance.
At Martin & Co we have advised our landlords to have the electrical installation of their properties certified as safe and for annual appliance testing to be implemented.  Following the Grenfell fire which is believed to have originated from a faulty domestic appliance, scrutiny in this area seems inevitable, and we expect electrical safety certification to become mandatory (as it already is for Gas appliances) over the coming year to 18 months.

The Martin & Co Landlord Spring Seminar

We recently hosted the latest Landlord seminar at which Mr. Chris Bailey who presented on the topic of Capital Allowances.  Yawn right?  Well NO actually, the attendees were without exception variously interested, angry and engaged.  Interested because the apparently dull topic allowed many of them to claim substantial tax benefits.  Angry because their own accountants or solicitors had failed to advise them about this opportunity.  And, engaged because of Chris’s offer to do a no-obligation estimate of the opportunity for them to claim these allowances.  Chris’s team have made over 3000 claims and each one has been successful apparently.

This is particularly of relevance to anyone who has HMO properties or any property let to 2 or more people who make up 2 or more family units e.g. a 2 bedroom apartment let to two unrelated nurses who work at the JR hospital for example.

If any reader is interested in exploring whether this might be of relevance to them, then please give me a call and we can chat it through and I can make a referral to Chris where there might be an opportunity.

Chris went on in the second half of the seminar to outline what he called a ‘hybrid ownership structure’ for rental properties which enabled landlords to offset the adverse financial effects of the wind-down of mortgage interest rate relief and reduce exposure to inheritance tax.  The structure combined the benefits of a limited liability partnership and a limited company.

At face value, this seems too good to be true, but Chris stated that he has set up the structure at least 300 times now and assured the audience it was tested with and approved by HMRC.

Anyone who might be interested in a referral to Chris on the hybrid structure, please let me know.

Has the Government gone too far? Is it worthwhile being a landlord?

This question is at the heart of matter for landlords as taxation policy and general regulations are tightening in response to the growth in the number of UK citizens renting their homes from private landlords.

Since the financial crisis in 2008, buy to let has been seen as a low-risk alternative to savings or stock market investments.  Oxford’s landlords have done particularly well, benefitting from strong annual rent inflation and strong capital appreciation.  

Data from Kent Reliance shows that over the course of a 25-year investment, a basic tax paying landlord, placing a typical 30% deposit of £73,908 on a property, will generate a total profit of £265,500 after all costs and taxes taking into account the Government’s changes

Once the impact of inflation over the period is factored-in, this represents a profit of £162,000 in today’s money, or £6,475 annually. 

If buy to let returns look set to continue being attractive, why are landlords leaving the market, selling their assets and investing elsewhere?  According to Hamptons, the number of properties available for private rental has fallen by 5% over the last 2 years in the South of England that’s 82,000 fewer rental homes.  That at a time when demand for rented accommodation has never been higher, and when it is predicted that over 17million UK citizens will depend on good quality rented homes being available to them.

So, has the government gone too far?

That question is not straightforward to answer.  Based purely on the economic argument, the figures above from Kent Reliance show that buy to let will continue to be viable financially.  Evidence from Scotland (where a tenant fee ban has been in place for several years), suggests that the ban of tenant fees in England will increase costs for landlords initially, but thereafter rents will rise above their historic trend rate.  If the supply of private rented homes is already reducing as Hamptons assert, then the rate of rent inflation could be even higher in England than that seen in Scotland.

Being a landlord is a business.  Just as companies owe a duty of care to its employees, landlords owe a duty of care to their tenants.  And, just as businesses budget their costs to optimise profits, so should landlords should budget a proportion of their gross income for reinvestment to maintain their assets.

Some changes being introduced by Government are both considered and necessary e.g. the improvement of minimum standards in the areas of gas, electrical and fire safety, the licencing of houses in multiple occupation; tightening of mortgage assessment processes and level of rental to repayment cover to protect landlords as interest rates rise.  However, other changes are pure politics, and seem certain to have unwanted consequences e.g. the ban of fees charged to tenants, and the stamp duty surcharge.  Both of these risk reducing the supply of private rented properties at a time when cities like Oxford already have a shortage.

As things stand:  Has the Government gone too far?  Yes.  Is it still worthwhile being a landlord? Yes, provided you recognise that you are running a business and are prepared to devote the time to running that business properly.

How to be a winner in Oxford’s competitive housing market

Asking prices for Oxford homes show no signs of falling, up 4% year on year to a new record high average value of £422,157.  However, the number of completed transactions in our City is down 11% year on year.

The number of houses on the market for sale is high, but 11% fewer properties are selling successfully, so Oxford has a buyer’s market.  What can sellers do to optimise the chances of their home selling successfully?

To achieve a sale, four factors must be considered:  Location, Condition, Presentation and Price.  We will explore these in turn.

Location

This is fixed, your home is where it is.  What makes it a great place to live?  Who is typically attracted to the area? – know your market.  Will your home and location appeal to first-time buyers, young and growing families or investors for example.  How easy is it to commute to the City centre, to London or to Birmingham?  Does it have great road links or great rail links?  You have lived in this area for a while, think about what attracted you in the first place, and how has it improved since?

Condition

Selling a home is competitive.  Why should buyers make the effort to view if you don’t make the effort to present it to its very best standard?  Your home must be presented to a high standard to compete effectively.  This starts with cleaning – from the carpets, to the kitchen cupboards, the bathroom to the cobwebs in the corner of the downstairs loo and dust on the skirting boards.  Believe me, buyers notice!  Employing a contract cleaner to really blitz the place is money well-spent. 

Do any walls or rooms need re-decorating? – be honest and don’t cut corners.  A tin of paint costs £20 to £30, but it could add £5,000 to the price you achieve.  Try to stick to light, neutral colours and avoid dark browns and black.  Pay attention to the details – chipped door frames, scuffed skirtings and tired window ledges.  Are there any fixtures that need fitting or repairing? That blind that’s half pulled out of the wall or the door that’s sticking.  And, above all, declutter – viewers want to imagine their belongings in your home not yours.  There’s a reason show homes are immaculate, clutter-free zones!

Think about how some ‘staging accessories’ could be positioned to wow potential buyers.  Cushions, Rugs, posh toiletries can all be used and taken with you.  For viewings, buy some flowers to add colour, and buy bedding and new towels that you only use for viewings, and then pack away until the next time.  Paint a picture for viewers – they can lack imagination, so show them how great their life will be in your home.

Presentation

Visual appeal is King – whether online, in the estate agent’s window or in the brochure that viewers take home.  A minimum of 10 high definition photographs, a floorplan and a description that helps buyers understand why your home is perfect for them.  Where are the shops?  Where are the Schools?  Where are the restaurants and bars?  Draw a picture in words of what they will love about your home.  But everyone has great photos and a floorplan, so go further – a 3-dimensional virtual walk through will create interaction, boost interest and improve the quality of your viewings – they’ve already walked round virtually, and now they want to do so for real.

Price

When all of the above is in place, you must be realistic about price.  Do your research. Use Rightmove and Zoopla to look at comparable properties against which you will compete for attention.  Buyers will have a forensic knowledge of the local market and will assess it dispassionately.  You need to do the same. 

Many estate agents will allow a buyer to over-price their property, confident that they will secure price reductions over-time.  But a property has its greatest impact over the first 2-3 weeks on market.  So be realistic and don’t squander the early marketing.

The viewing

This is THE critical moment. Plan it carefully.  Are there times of the day to avoid – because of noise or congestion?  Make sure your home looks as good in real life as it did for the photos.  Stay enthusiastic – it might be your 10^th viewing, but it is the viewer’s first!  Clean, tidy, declutter and ‘stage’ for every viewing.  And remember, the outside is as important as the inside – first impressions count.

The sale

Because it is a buyers’ market expect to negotiate the price.  Many Oxford homes sell for prices lower than advertised.  Know what’s your bottom-line and negotiate carefully to achieve it.

Over the last year 2,898 Oxford homes found a buyer and completed a sale that’s 360 fewer than in the previous 12 months.  Last year, I wrote a guide for Oxford homes sellers – ‘How to sell your home quicker and for more’ to help buyers understand how to succeed.  It has proved very popular. If you are selling your home and think the guide might be helpful please give Jay Sarbatta a call on 01865812110.

National Landlord Association forecasts a ‘Perfect Storm’

The National Landlord Association (NLA) has released research based on feedback from 1000 landlords, which shows that 19% of landlords plan to sell one or more of their properties – a historic high!

With record growth in demand from renters, this trend points to a reduction in the number of available properies suggesting a ‘Perfect Storm’ where demand is rising and supply is falling.

The survey suggests the biggest reason for sale is the changes to mortgage interest rate relief.

The survey suggests that 78% of those who plan to sell will sell apartments and terraced houses – which is bad news for young renters, but potentially good news for first-time buyers.  However, the tightened rules of mortgage lending, mean that for most, the dream of buying rather than renting is not available to them.  It is the high cost of a deposit and/or the ability to access mortgage finance and not competition with landlords that stops most young adults from buying a home.

This blog has been pointing out the unwanted consequences of Government policy for several weeks.  If supply falls and demand rises as forecast, rents will rise naturally.  Add to that, the scheduled ban on fees charged to tenants which will increase landlord costs, and there will be additional rent inflation pressures.

What do the ‘political tea leaves’ indicate?

There’s a growing belief the Conservatives are just one electoral jolt away from hijacking some of Labour’s rental sector policies in a bid to woo younger voters.  With reports last week of 16m UK citizens renting over the coming years, it is clear tenants will become an increasingly powerful electoral force.

Just last week the editorial in the right-wing political magazine The Spectator, advocated that the Tories steal Labour’s policies on rent caps and longer tenancies - or risk losing the next general election.

If the Conservatives do badly in next Thursday’s local elections, the increasingly common view is that the party should become more pro-tenant and by implication more anti-landlord.

So, if the Conservatives lose local council seats in London, will they start demanding policies to win back disillusioned young voters in time for a General Election in 2022?  And will they start with the disillusioned young people who feel that they have been forced to rent by unaffordable house prices, mortgage lender demands for large unattainable deposits and by the burden of student debt repayments.

So, what might these further reforms target?

They could introduce rent caps aligned to local salaries. They could make 24 or even 36-month tenancies standard.  They could give further planning advantages to Build to Rent.  They could further raise stamp duty and capital gains tax on second homes. And, they could clampdown on incorporated landlords.

Will such reforms benefit the rental market?

In the main, no.  Any easing of planning restriction to create new rental properties is to be welcomed, but the reality is that there is already insufficient available properties for rent, and anything that discourages private or incorporated landlords from investing in new property is likely to exacerbate the supply crisis.  Further constraint on supply will perversely drive-up rents, causing further demands and pressure for rent caps to keep renting affordable.

Unfortunately, the reforms being demanded by the Labour party and increasingly stolen and rebranded by the Conservative party are not conceived as a rational well thought out response to a difficult market situation, they are purely aiming to be popular with lots on young voters.  To hell with solving the problem, let’s just do what’s popular!

So, what should landlords do?

Those with properties should hold-on to their valuable assets – they are the lucky ones.  Further changes to the tax system are unlikely to be sufficiently significant to undermine the returns and value of their assets.  Those wanting to expand their portfolios should probably get in quick – it seems unlikely that barriers such as the stamp duty surcharge will be repealed and more likely that they will become tougher.  Those with a longer-term plan? - it is probably a wait and see and compare the returns from buy to let to other investments at the time.

I think all buy to let investors though need to consider the wider investment climate, and the potential volatility of alternative investments.  Oxford’s Global profile as a centre for learning, a beautiful historic city and a vibrant knowledge-based economy will create stability of demand for accommodation.  As the plans to join together Oxford and Cambridge materialise, housing supply will increase progressively over the coming 10 to 15 years.  Until then, demand for good quality private rented properties will continue to grow.  So landlords, keep calm & carry-on investing, but keep an eye on the politicians, they don’t have your best interests at heart!

Oxford Is The Best City For First-time Buyers

According to MoneySupermarket, Oxford is the best of 35 Cities surveyed for first-time buyers.  The Index analysed 35 UK cities against key criteria for first-time buyers, including the cost of a one-bed property, crime statistics, job opportunities and average salary in the local area.

Best five cities for first time buyers:

Oxford - first place due to high average salaries, good job opportunities and its position within the commuting belt to London.

Bath - second place due to the highest job availability of all cities analysed, with 13.76 vacancies per 100 capita, while big company headquarters within commuting distance of Bath - such as Clark’s Shoes, Screwfix and Future Publishing - also make it an attractive city for those looking to settle down.

Wolverhampton - third place because it scores marks for affordable housing, with an average one-bed property costing £97,821 - significantly lower than the national average of £134,561.

York - fourth place despite relatively high housing costs - at over £155,000 for a one-bed flat - due to a low contents theft rate, at only 6.9 per 1,000 capita. A relatively high disposable income, at £17,663 per household, also puts this city in the top five.

Aberdeen - fifth in the rankings and beats Glasgow by 17 places, thanks to a higher average disposable income and good average house prices - £164,041 compared to London’s average of just under £500,000 (£484,172).

At the other end of the spectrum is London, which ranks lowest in the table, alongside Newry, Hull, Sheffield and Leicester.

The Martin & Co Spring 2018 Landlord Seminar

Background

According to OneSavings Bank research 51% of UK brokers have been approached by Landlord looking to diversify their portfolio of properties over the last 6 months.  56% of landlords surveyed wanted to diversify into Houses of Multiple Occupation, 14% wanted to diversify into commercial property, and 9% into mixed use.  The primary reason given was to mitigate recent tax increases related to mortgage interest rate relief and higher stamp duty.

Recent research by Mortgages for Business suggests that the average yield of an HMO is 3.3% per annum higher than an unshared residential property.

The Martin & Co Spring 2018 Landlord Seminar

The next Martin & Co Landlord seminar consider how existing owners of HMO or multi-let properties and/or commercial properties can save significant sums by fully utilising their capital allowances.  It will illustrate how one owner of 5 HMO properties was helped to claim £67,000 of capital allowances with the help of our speaker Chris Bailey or the eponymous Bailey Group.

Whether you are considering diversifying your portfolio or whether you already have one or more HMO or multi-let properties this seminar is a MUST ATTEND 90 minutes.

Location and date

24 May 2018 at 6pm running through to 7.30pm at The Oxford Spires Hotel on Abingdon Road.

Attendance by reservation only

Spaces are limited and over half have already been booked. Email me at bill.cooper@martinco.com to reserve your space.

Why would an Oxford landlord sell her properties?

I’m not often surprised to be asked a question by one of my landlord clients, but I am finding myself asked the same question by lots of landlords - client and non-client alike. For most of those who have asked this question, the answer seems to me to be so glaringly obvious, I’m surprised it’s been asked.  So, what’s the question?

Should I sell one or more of my portfolio given the changes to mortgage interest rate relief?

One of my favourite clients posed this question recently, and I know she won’t mind me using her to illustrate why I am so surprised at being asked in the first place. 

The landlord in question owns two properties, one that was bought in 2005 and the other in 2011.  According to Hometrack’s City Index for Oxford, properties have risen on average by 51% since 2011 and by 80% since 2005.  Of course, much of the gain between 2005 and 2011 was wiped-out by the credit-crunch, which also triggered increased demand for Oxford rental properties from people struggling to secure the mortgage needed to buy.

My client bought the property in 2005 for £235,000 which was pretty much the average house price.  It is now worth £400,000.  That’s growth of 70%, some way below the Oxford average over the same period.  The property has new tenants paying £1,625pcm giving a return on investment of 8.3% per annum.  In aggregate – taking into account the compound annual growth rate (CAGR) in capital value of 4.53% and the 8.3% gross rental yield over the next 12 months – the property is delivering a gross return of nearly 13% per annum.

She bought the second property in 2011 for £265,000 and it is worth £435,000 today.  That total growth of 64% which is well above the Hometrack average for Oxford.  That’s a CAGR of 8.61%!  The rent during the coming 12 months will be £1,625 giving an annual return on investment of 7.4%.  Taken together this property is delivering a gross return of 16% per annum.

So, two assets one of which is yielding a 13% annual return and the second of which is delivering a 16% annual return.  At a time when the bank of England base rate is STILL at a quarter of 1%, building society accounts are yielding 1 to 2% per annum, and stock markets are running scared of Donald Trump’s global trade war-mongering, a solid, reliable, locked-in 13% to 16% return on investment is tough to beat.

One final thought – if you have assets in a market where the costs of re-entry are now so high (given the average price of Oxford property and the 3% Stamp Duty surcharge) why would you sell?  Unless you need the capital or know how you will invest it as securely and for a higher overall return, please, please, please recognise the value of the assets you own.

Oxford home owners earn more from their home than their salary!

According to data from Halifax, Oxford homeowners have earned more from the growth in the value of their home than from increases in their salary.

According to Halifax over the last 2 years the difference between the average increase in Oxford salary and the increase in Oxford house prices is £22,513 in favour of the property!

This places Oxford as no 10 in the charts of where your home will earn more than your job!  Alongside Fareham, Worthing, Guildford, Canterbury and North Hertfordshire, Oxford is one of just 6 places outside of greater London in the Top 10.

Next week I will publish an article that shows the value of Oxford property to those who are lucky enough to own and rent-out Oxford property.  The Halifax research shows that the benefits extend to both owner-occupiers and buy to let landlords.

Why do Oxford house sales fall through?

Selling a house is easy right?  The process is well known, proven and routine.  In fact, 2,844 Oxford homes were sold over the last 12 months.  So what’s the problem?

Well according to recent research, 38.8% of property sales fell through – the highest proportion for over 10 years.  For Oxford, that suggests that 1,803 house sale transactions failed to complete, contributing to the 13% year on year reduction in the total number of Oxford homes sold.

What is the reason for so many house sales failing?

The most significant reason is Buyers changing their mind or Oxford Sellers ‘pulling the plug’ because the process is too slow.  Combined these account for 46% of house sale failures.  A good estate agent will properly determine buyers commitment, financial viability and requirements.  A good agent will probe and challenge to enable them to accurately match each buyer with the properties they have available.  Equally, a good estate agent will devote time and effort each week to sales  progression, ensuring that delays are minimised, but ensuring that all parties are kept fully informed of progress.

It may be that we are starting to see the weakness of the low-cost, up-front fee model favoured by online agents.  Once their fee is secured, such agents have no incentive to properly register buyers nor in devoting expensive time and effort to sales progression.  Ultimately, buyers get what they pay for, and with close to half of all sales fall-throughs caused by these reasons, it seems clear that agents MUST devote more time to ensuring they have proceedable buyers and that the sales progresses effectively.

The second biggest cause of Oxford house sales failing to complete is either the buyer or seller wishing to renegotiate the price agreed. With a transaction as significant as a house purchase, it is inevitable that the buyer will want to pay the least possible and the seller will want to achieve the best possible price.  The estate agent has a role to play here too.  Both parties need to be properly informed of the market price that closely comparable properties have achieved, and when a buyer makes an offer, a good estate agent will be able to advise their client on whether the offer represents fair value in the context of the local market.

Over one in ten house sales fall-through because the house survey identifies one or more adverse findings.  For example, many homes in and around central Oxford have a heightened flood risk.  As a rule of thumb, the factors identified when the seller moved-in, will again be identified by the buyers’ advisors.  The more that can be proactively divulged the better to ensure that they will not result in the buyer withdrawing.  Better to know early than after 8 weeks of sales progression.

So far, so familiar.  However, c12% of Oxford house sale fall-throughs are a direct result of the tougher lending criteria imposed by legislation in the post-credit crunch world in which we live.  This is another area where a good estate agent will advise a buyer, helping them to understand the size of deposit and the likely income required to secure and support their mortgage.  The best agents have relationships with a range of specialists who can advise buyer in light of the new rules and regulations.

The final top reason for Oxford house sales to fall-through is the property purchase chain collapsing.  When a buyer has a property to sell, and the seller has offered on a property to move to, each part of the chain is reliant on the other parts.  Fewer Oxford homes are being advertised for sale, and that creates shortages of properties for buyer and sellers to move to.  Good estate agents understand the importance of building a relationship with the other agents in the chain to work together to hold a chain together benefitting all their clients.

Oxford house sellers should think carefully when selecting their preferred agent, evaluating their ability to assist with all aspects of the sales process ensuring that their sale is not one of the c40% that fail to complete.  Like moves things in life, you get what you pay for!

Oxford landlords are you ready for MEES?

The Association of Residential Letting Agents (ARLA) is warning that “thousands” of landlords simply are not ready for energy efficiency changes coming into effect on Sunday.

From April 1 all rented properties on new lets, including renewals, will be required to comply with the government’s minimum energy efficiency standards, or MEES. 

This will ensure tenants have better quality and better insulated homes, as every BTL will be minimum EPC rated E.

 The number of properties which are EPC rated F or G has fallen dramatically from 700,000 in 2012, to 300,000 today, many landlords are yet to prepare their properties for the new laws.

Sunday’s deadline means landlords who do not or cannot conform will either face fines of up to £4,000, or lose money on empty properties which cannot be let until they meet the standards. 

Martin & Co in Oxford and Kidlington has been in dialogue with its landlords over several months, assisting as required to prepare properties for the new energy efficiency targets.  Most landlords have recognised the need to act, with just a handful who still have to put in place the necessary arrangements. 

Lies, damned lies and Oxford property price statistics!

Last week the Office for National Statistics (ONS) published a report on house prices.  In the report, Oxford was singled-out as a market that had experienced a 4.7% fall in house prices.  Even London had done better, much better!

I place reliance on Land Registry data – information that is based on the houses and apartments that have sold.  That data is reporting that Oxford house prices have increased year on year by 3% based on data for the year to February 2018.  A massive 7.7% spread between two valued and supposedly trustworthy sources.

So why the 7.7% spread in house price changes?

The ONS report is based on data just for the month of January i.e. January 2018 vs January 2017.  In-month Oxford sale prices ca

Last week the Office for National Statistics (ONS) published a report on house prices.  In the report, Oxford was singled-out as a market that had experienced a 4.7% fall in house prices.  Even London had done better, much better!

I place reliance on Land Registry data – information that is based on the houses and apartments that have sold.  That data is reporting that Oxford house prices have increased year on year by 3% based on data for the year to February 2018.  A massive 7.7% spread between two valued and supposedly trustworthy sources.

So why the 7.7% spread in house price changes?

The ONS report is based on data just for the month of January i.e. January 2018 vs January 2017.  In-month Oxford sale prices can be rather erratic, and also subject to later revision, once the data is confirmed for all completed sales.  To illustrate this point, the ONS reports that Oxford properties increased in value by 0.7% in December 2017 but fell by 4.7% in January 2018 – quite a difference, I think you will agree.  In December the ONS also reported that prices in London’s Kensington and Chelsea had fallen by 10.7% only to revise that to minus 6.9% in their January report.

So why is the ONS data so volatile?  It is largely because of the way the data is collated.  Registrations of properties following a sale take some time, often reaching the Land Registry months after the sale is completed.  As a result, the data improves in accuracy over time requiring the ONS to recalculate their index figures each month for previous months.

At the time of writing the Land Registry has just 41 sales registered in Oxford for January 2018 compared to 117 in January 2017.  That is a small sample, and one that can be significantly affected by the actual properties included - for example, the January 2017 data contains a few higher value properties with a sale price over £1.2m.  If the January 2018 data contains more 2 or 3 bed roomed properties nearer the Oxford average, it is bound to result in a poor comparison with January 2017.

It is much better to use data that is based on rolling a 12-month period so each month’s data is based on movement over the last 12 months, ensuring a much larger sample and avoiding erratic in month changes.

But, what can the ONS data tell us?  In isolation not very much But, together with longer-term trend data there is a definite slowing in the rate of annual growth in Oxford’s property prices.  Over the last 4 or 5 months, the long-term trend of growth has progressively reduced from c6% down to the February 3%.  This together with a continued reduction in total transactions points to a market where property is expensive, and where home owners either can’t afford to move, or are choosing to stay put and improve the property they have.  It also points to a market where buyers are taking their time to commit, reflecting a shortage in choice and caution given the gearing required to proceed.

For home owners in a hurry to move, sensible pricing and targeted marketing are critical.

Asking prices hit record highs

The Bank of England has warned that the housing boom means that borrowers are stretching themselves like never before to buy property, with over 27% borrowing more than four times their annual income.  To put that into perspective, it is the highest figure ever and double the ratio of eight years ago.

This appears to be borne-out by Rightmove data which reports that first-time and second-time properties in the UK have hit all-time highs of £189,840 and £272,031 respectively.  Rightmove goes on to report that the average asking price for newly-marketed properties has jumped 1.5%, at the same time as a 5% drop in the number of properties coming to market compared to a year ago.

In Oxford 1 bed properties currently on the market range from £350,000 to £450,000 for an apartment in central Oxford or Summertown down to £160,000 to £200,000 in East Oxford.  The lowest priced Oxford 1-bedroom apartment currently on sale is valued at £6,154 per square metre.  There is a studio apartment measuring less than 13 square metres with an asking price of £180,000, that’s £14,000 per square metre.  To put that into perspective, the highest priced 4 bed properties are valued at around £10,500 per square metre; and the lowest priced 4 beds are valued at around £2,600 per square metre.  On this basis (value per square metre) first time buyers in Oxford must pay between £6,154 and £14,000 per square metre, when families pay between £2,600 and £10,500 per square metre.

In line with the national trend, Oxford is also experiencing a fall in the number of transactions (completed sales) down 14% on the previous 12-month period.  Of the 2,845 sales completed, just 2% were new build, up on the 1% previously.  However, of the total new build 59.8% were detached properties and just 18.6% apartments and 7.2% terraced properties.  So, new build is not only below the required level, but the Council (via it’s planning approvals) and house builders are prioritising detached 4 and 5 bed properties over first and second time buyer properties.   

This appears to be a peculiarly ‘Oxford’ problem.  Across the South East as a whole apartments and terraced properties account for over half (51%) roughly double that achieved in Oxford.

Is the Bank of England right to be warning about the level of debt as a multiple of income for house purchase?  Well, it is worried particularly about the sustainability of that debt as interest rates rise.  For many first and second time buyers, BoE interest rates have not exceeded 0.5%, meaning mortgage debt has been cheap.  We are now entering a period where interest rates will progressively normalise towards their long-term trend rate of nearer 5% - a tenfold increase on what many have ever experienced.  This is a valid concern where those home owners do not move quickly to fix their interest rate, insulating themselves from the expected rise in base rates.

First-time buyers in Oxford currently have no choice – they are expected to pay the most for the space they acquire, in one of the Country’s most expensive real estate markets.  Until local planners and house builders work together to increase the supply of 1 and 2 bedroom properties, this will not change, and the Oxford market will remain stubbornly unaffordable.

Oxford property just keeps delivering

Regular and long-standing readers will know that I like to explore the ‘inside story’ of the Oxford property market, digging beneath the headlines to understand the market at a more ‘granular’ level.

Oxford headlines based on land registry data (the one source of the truth based on completed transactions).  In January 2018, Oxford house prices were 5% higher over the last 12 months.  So Oxford didn’t follow London in the doldrums as some (a hem…including me) predicted could happen in 2017.  But, the number of completed transactions was down 21% with just 2,618 house sales being completed.  The average price achieved was £422,055 meaning Oxford and Cambridge were the only two UK cities other than London to have an average price beginning with a ‘4’.  Oxford remains the least affordable UK city when average house price is compared to average income earned in the City.

How does Oxford’s property market vary by post code?  As can be seen from the table below things vary quite significantly.

Central OX1 experienced the largest fall in transaction volumes, down a quarter, with OX4 down just 11%.  But OX5 average price was up just 1% when OX2 was up 11%.  The spread on average price was £233,742 with OX2 dragging-up the average.  OX4 saw the highest number of completed transactions. 

But post code areas are still too large to get a sufficiently granular understanding of what’s going on out there.  And, it is always good policy to look at data from different sources.  So let’s look at some of Oxford’s key areas using data from Rightmove.  This data is based on properties sold on Rightmove rather than the whole market.

The table [or graph] below shows average price achieved for 14 of Oxford’s best known residential areas, and also how those averages have changed compared to the prior 12-month period.  Straight away it can be seen that each post code can hide enormous variation in average values and in the change over a 12-month period.  Prices in OX1 have changed by between - 8% in Kennington to +15% on Grandpont.  The only consistently positive shift in prices was seen in OX4 with Rose Hill, Littlemore and Cowley each in positive territory.  The worst performing sub-market was Kennington and the best performing Grandpont, closely followed by Marston, Rose Hill and Littlemore.  All strong owner-occupier markets offering a good range of affordable homes.

So what about the rental market I hear landlord readers ask?  Across Oxford average rents rose by just 1% compared the prior year averaging £1,207 per calendar month.  But this too hides some variation between property type.  Detached home rents rose 3.1%; semi-detached 3.2%; terraced 3.7%; and, flats 0.16%.  So it can be seen that Oxford apartments which were over 45% of all tenancies, were impacted more than other property types.  So why was that?  My own opinion is that the negativity surrounding Brexit adversely impacted demand from foreign nationals wanting to study in Oxford, undermining demand for central-Oxford apartments.

It’s millennials who are driving demand for Oxford rentals, at least that’s the common narrative.  But in fact, the average age of an Oxford tenant is 33.  50% of all demand comes from people over the age of 29 and 22% from people over the age of 39.  So in reality the demand for rental properties is shifting to include young families who need 3 and 4 bedroom properties in areas with schools, easy access to schools and good road and rail links.

Oxford Private Rents Average £27.92 per sq. foot

Gone are the days of making money by buying any old Oxford property to rent out or sell on. Nowadays, property investment is part art and part science. The art is your gut reaction to a property, but science must also play its part on a property’s future viability for investment.

Many metrics most property professionals (including myself) use when deciding the viability of a rental property is what properties are selling for, the average rent, the yield and an average value per square foot.

However, another metric I like to use is the average rent per square foot. The reason being it is a great way to judge a property from the point of view of the tenant ... what space do they get for their money. Like people buying a property, tenants must balance between better vs. worse location, more vs. less money and larger vs. smaller accommodation.

I know there are a lot of you in Oxford who like to read statistics on the Oxford property market, so before I talk about the rental figures per square foot, I wanted to share the £ per square foot for sales values. In Oxford, the current AVERAGE figures being achieved by properties are:

·        Oxford Detached Property - £472 / sq ft

·        Oxford Semi Detached Property - £476 / sq ft

·        Oxford Terraced Property - £509 / sq ft

·        Oxford Apartments - £537 / sq ft

So, the rental figures:

The average size of a rental property in the Oxford area is 833.2 sq ft compared to the national average of 792.1 sq ft. This means the average rent per square foot currently being achieved on an Oxford rental property is £27.92 per sq ft per annum

So, what we can deduce from this?  Well the devil is in detail!

Something quite intriguing happens to the figures, in terms of what the property will sell for and what it will rent for, as the size of the property increases.

My research shows that doubling the size of any Oxford property doesn’t mean you will double the value of it … in either value or rent. This is because the marginal value diminishes as the size of the property increases. In Oxford what appears to happen is that a doubling of size gives an approximate 40% to 65% uplift in value, but here comes the even more fascinating part … when it came to the rental figures, doubling the size of the house generates only a 20% to 45% in increase in rent.