Slowing Oxford Property Market? Yes and No!

Being a buy-to-let landlord in Oxford is a balancing act many do well. Talking to several Oxford landlords, they are conscious of their tenants’ capacity and ability to pay the rent but feel with their own costs rising, there is now pressure for rents to rise.

Historic evidence suggests that the rents new tenants have to pay typically increase during the summer months. June, July & August is a time when renters like to move, demand surges and the normal supply and demand seesaw mean tenants are normally prepared to pay more to secure the property they want to live in.

Rents in Oxford on average for new tenants moving in have risen 0.9% for the month, taking overall annual Oxford rents 0.9% lower for the year

However, several Oxford landlords have expressed their apprehensions about a slowing of the housing market. I personally feel their negativity may be misplaced.

The other side of the coin for property investing is capital values (which are of interest to all the homeowners in Oxford as well as Oxford buy-to-let landlords).  I believe the Oxford property market has been trying to find some level of equilibrium since the New Year.  According to the Land Registry

Property Values in Oxford are 7.49% higher than they were 12 months ago, despite a drop of 0.07% last month

Yet, I would take those figures with a pinch of salt as they reflect the sales of Oxford properties that took place in early Spring 2017 which are only now exchanging and completing during the summer months.

The reality is the number of properties that are on the market in Oxford today has risen by 41.02% since the New Year at a time when the total number of transactions is down by 17% which will have a dampening effect on property values. As tenants have less choice, buyers now have more choice and that will temper Oxford property prices as we head towards 2018.

Be you a homeowner or landlord, if you are planning to sell your Oxford property in the short term, it is crucial, especially with the rise in the number of properties on the market, that you realistically price your property when you bring it to the market.  With the increase in choice of properties, the balance of power during negotiation generally sways towards the buyer.

Oxford house price inflation loses momentum

House price inflation in Oxford, like other big southern cities in the UK, has seen growth slip from double to single digits. London has reached its lowest level for five years,

The latest Hometrack UK Cities House Price Index revealed growth in London has dropped to 3.5%, a slowdown from the 13% registered in April 2016, giving an average value of £489,400.
Bristol, Cambridge and Oxford, previously top performers, have also seen price inflation slip into single figures, while in contrast the Midlands and northern England are topping the charts.

The average house price in Oxford over the last 12 months is now £407,248.  There have been 3,148 sales transactions over the same period which is 15% down on the same period 12 months earlier.

In comparison, Manchester recorded price growth of 8.4% during April where average prices were £155,000, followed by growth of 7.7% in both Leicester and Birmingham where values are at £164,600 and £152,100 respectively.

Across the top 20 UK cities, price growth has slowed in the past 12 months from 8.7% to 5.3%, with average prices at £247,400.

6,564,678 People use Oxford Train Station a year - How does that affect the Oxford Property Market?

It might surprise you that it isn’t always the nicest most picturesque villages around Oxford or the most desirable Oxford streets where properties sell or let the quickest. Quite often, it’s the ones that offer the best transport links. There is a reason why one of the most popular property programmes on television is called Location, Location, Location!

As an agent in Oxford, I am frequently confronted with queries about the Oxford property market, and most days I am asked, “What is the best part of Oxford to live in these days?”,.  Now, the answer can be different for each person – a lot depends on individual factors e.g. the age of their family, their age, schooling requirements and interests etc. Nonetheless, one of the principal necessities for most tenants and buyers is ease of access to transport links, including public transport – of which the railways are very important.

Official figures recently released show that, in total, 9,017 people jump on a train each and every day from Oxford Train station. Of those, 2,811 are season ticket holders. That’s a lot of money being spent when a season ticket, standard class, to London is £5,724 a year.

The bottom line is that property values in central Oxford would be much lower, by at least 3% to 4%, if it wasn’t for the proximity of the railway station and the people it allows access north and south of the City

Rail is becoming increasingly important, as the costs associated with car travel continue to rise and as the roads are becoming more and more congested. This has resulted in a huge surge in demand for rail travel.  

Overall usage of the station at Oxford has increased over the last 20 years. In 1997, a total of 3,064,352 people went through the barriers or connected with another train at the station in that 12-month period. However, in 2016, that figure had risen to 6,564,678 people using the station (that’s 18,035 people a day).  Hence the huge investment in capacity at Oxford parkway station where parallel investment in bus routes to/from Oxford has driven house prices in and around Kidlington, meaning that house price growth continues to track above the average for Oxford.

A property’s location relative to the train station has an important effect on its value and saleability in Oxford. It is also significant for tenants – allowing car-free living to be realistic in a City that wishes to limit car usage.

One of the first things house buyers and tenants do when surfing the web for somewhere to live is find out the proximity of a property to the train station. That is why Rightmove displays the distance to the railway station alongside each and every property on their website – they know it is in the top 5 criteria applied by buyers and tenants alike.  To illustrate this, recently a couple came to me looking for a property 5 minutes’ walk from Oxford station and 5 minutes’ walk to the central shops, restaurants and bars.  They wanted 2 bedrooms, one bathroom and wanted to keep the monthly rent to around £1,000.  In the event, they achieved their perfect location, but had to raise their budget by 20%, reflecting the premium that proximity to the stations carries.  They are now living just off St Thomas Street, just a few hundred yards from the Central station.

Oxford First Time Buyers borrow £76.2m in the last 12 months

Over the last 12 months in the UK, 1,061,557 properties were sold with a total value of £223.74 bn. To give that some context, ten years ago 1,581,727 properties sold with a total value of £405.56bn, so it can be seen the number of people moving house has dropped by over a third over the last decade.

Whether you are a landlord, homeowner or tenant, it’s always important to keep an eye on the Oxford property market.  Over the last 12 months, 1,586 properties have sold (and completed) in Oxford, worth £780.9m. Interestingly the number of properties changing hands in Oxford has also dropped when compared to a decade ago.

It might also surprise you that first time buyers in 2017 will benefit from a decline in purchases by Oxford buy-to-let investors.

Those looking to buy a home in the spring of 2017 will face a far less competitive Oxford property market than the same time of year in 2016, when the urgency to beat the buy-to-let stamp duty hike was in full swing

Many landlords brought forward their purchases to beat the tax, and since then, the number of buy-to-let purchases has dropped by around 12%. First time buyers have taken advantage of that and have increased their buying. In fact, looking at the Bank of England figures, this is what UK lenders have lent on buy-to-let properties versus first time buyers over the last 12 months:

When looking at the figures for Oxford itself, first time buyers have borrowed more than £76.2m in the last 12 months to buy their first home. This is a ringing endorsement of their confidence in their jobs and the local Oxford economy. Those 20 and 30 something’s who are considering being first time buyers in 2017 will find that the number of properties on the market has never been as good as it has for quite a while, meaning you have more choice of properties and less competition from so many buy-to-let landlords.

Rightmove announced nationally that new seller enquiries are 26% up on the same time last year giving the stoutest indication that we may see a slight ease in the lack of properties on the market. When I look at the Oxford market, at this moment in time there are an impressive 729 properties for sale, so plenty of choice, which is welcome news to all potential buyers.

2017 will be an interesting year for homeowners, be they buy-to-let landlords, existing homeowners or future homeowners. 

15.8% of Oxford People live in Shared Households

How does a canny landlord establish the shape of future demand, so she/he buys the right type of property?  As knowing when and where the demand of tenants is going to come from in the coming decade is just as important as knowing the supply side of the buy to let equation, in relation to the number of properties built in Oxford, Oxford property prices, Oxford yields and Oxford rents.

In 2001, there were 51,700 households with a population of 134,200 in the Oxford City Council area. By 2011, that had grown to 55,400 households and a population of 151,900.

meaning, between 2001 and 2011, whilst the number of households in the Oxford City Council area grew by 7.16%, the population grew by 13.19%

Nothing surprising there then you might think, but my analysis of the 2011 Census results, using the most recent in-depth data on household formation (eg ‘one person households’, ‘couples/ family households’ or ‘couples + other adults households and multi -adult households’), has displayed a sudden and unexpected break with the trends of the whole of the 20^th Century. There has actually been a dramatic change in household formation in Oxford between 2001 and 2011.

Between 2001 and 2011, the population of Oxford grew, as did the number of Oxford properties (because of new home building). However, the growth rate of new properties built in Oxford was much lower than expected, but despite that the population has still grown by what was forecast rather than its growth being constrained by a lack of house building.  This must surely mean that the average household size was larger than anticipated in Oxford. In fact, average household size (ie the number of people in each property) in 2011 was almost exactly the same as in 2001, the first time for at least 100 years it had not fallen between censuses. (Since 1911, household size has decreased by around 20% every decade).

Looking at figures specifically for Oxford:

·       One person households - 32.7%

·       Couples/family households – 51.5%

·       Couple + other adults/multi-adult households – 15.8%

The decline was reflected in large scale shifts in the mix of household types. In particular, there were far more “couple + other adults households and multi -adult households” than expected (15.8% is c8,750 households). This can be put down to two things: Firstly, increased international migration; and, secondly, changes to household formation. A particularly important reason for the difference can most probably be attributed to the evidence that migrants initially form fewer households (ie two couples share one property) than those who have lived in the UK all their lives. Also, changes to household formation patterns amongst the rest of the population, including adult children living longer with their parents and more young adults living in shared accommodation (as can be seen in the growth of HMO properties (Homes in Multiple Occupation).  Traditionally in Oxford the term HMO was synonymous with student accommodation, however, as property become less affordable, young professionals are increasingly occupying shared accommodation enabling them to move for better jobs or simply to leave the family home earlier than would otherwise be the case.

So, what does all this mean for Oxford Homeowners and Landlords? Quite a lot in fact. There has been a subtle shift to larger households in the last decade, meaning smart landlords might be tempted to buy slightly larger properties, applying for an HMO licence from the Council in order to let their property to multiple professional tenants.  It also means that home owners selling their properties may be advised to market their property more widely via an agent with strong relationships with professional landlords as well as people looking to be owner occupiers.

RICS calls for Government to reverse the stamp duty surcharge

The Royal Institute of Chartered Surveyors (RICS) forecasts that more than 1.8m households will be looking to rent across the country by 2025.  Between 2001 and 2014 the number of UK households renting rose from 2.3m to 5.4m households.

Oxford is widely recognised as the least affordable place in the UK with house prices at the lower end of the market being 10 times average earnings of the City’s residents and overall prices being over 15 times the average salary according to an Oxford University Study in 2015.

Not surprisingly that means demand for rented properties in Oxford is amongst the highest in the Country with over 28% of households renting in the private rented sector compared to just over 17% nationally.  That equates to some 16,000 households.

RICS recognises that as a result of the increasing demand for rental properties, it is vital that the Government change its focus from supporting and encouraging house ownership, to encouraging a greater supply of private rental properties.  It specifically, supports my own call for more property to be built specifically for purchase by landlords increasing the supply of available rental properties.

RICS also agrees with views I have expressed over recent months, that the new prime minister should reverse the stamp duty surcharge imposed on landlords, pointing to the fact that 86% of landlords’ state they have no plans to expand their portfolio of properties since the surcharge was introduced.

In Oxford this is more pressing than just about anywhere else in the UK.  House prices have risen steeply over the last 10 years and continue to offer average annual increases of 5.8% according to the latest LendInvest index.  This is reducing the rental yield that landlords can achieve on many properties to less than 5% per annum.  When coupled with the additional stamp duty burden (an apartment costing £390,000 has a stamp duty charge of £21,200 for a buy to let landlord) this can result in negative investment returns for the initial 2 to 3-year period of ownership.  Where the landlord is additionally borrowing to purchase the property, with recent HMRC legislation removing the ability for debt interest to be off-set, for many landlords the risk of investment is now too great.

Through its continued focus on home ownership, and a mistaken belief that penalising landlords would free-up more property for home ownership, the Government has failed to recognise that the affordability gap between property prices and average earnings, means that they will simply reduce the supply of affordable homes for households who wish to rent, exacerbating the already critical under-supply of homes.

Ultimately more homes need to be built and built quickly at numbers not previously achieved.  However, in Oxford particularly many new homes should target purchase by private landlords, increasing the supply of modern affordable rental properties.  In Oxford the fastest growth in terms of housing supply has been purpose built apartments, where close to 15,000 households now reside.  Expansion of purpose built apartments is critical if Oxford is to keep growing and offering great homes to its vibrant and young population.

Buy to let of the week

Marketed by Amelies, this 2 bedroom semi in Greater Leys looks to be a real opportunity for investment by a buy to let landlord. 

Priced at £270,000 the property looks to be in a good state of repair and is well located in an area that is popular with first-time buyers and tenants. 

I think at £270,000 this property looks to be priced at the very top-end.  An offer accepted at £260,000 would be about on the money. 

For rental, this house, furnished would certainly achieve £1,000 all day long, and given its good state of presentation £1,050 should be achievable.

A gross rental yield of 4.8% plus 12 month appreciation of 4% points to an overall gross return on investment of 8.8% over the course of the first 12 months.