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.