What will the 0.25% Interest Rate do to the Oxford Property Market?

I was speaking with a Boars Hill landlord who owns a few properties in the city when he popped his head in to my office while his wife was shopping in town shopping (and let’s be honest talking about the Oxford Property Market is a lot more interesting than clothes shopping!). We had never spoken before (because he uses another agent in the city to manage his Oxford properties) yet after reading my blog on the Oxford Property Market for a few weeks, the landlord wanted to know my thoughts on how the recent interest rate cut would affect the Oxford property market and I would also like to share these thoughts with you.

It’s been a few weeks now since interest rates were cut to 0.25% by the Bank of England because the Bank believed Brexit could lead to a materially lower path of growth for the UK, especially for the manufacturing and construction industries. You see, for the country as a whole, the manufacturing and construction industries are still performing well below the pre-credit crunch levels of 2008/09, so the British economy remains highly susceptible to an economic shock. This is especially important in Oxford, because even though we have had a number of local success stories in manufacturing and construction, a large number of people are employed in these sectors. In Oxford, of the 74,277 people who have a job, 3,794 are in the manufacturing industry and 3,172 in Construction meaning

5.1% of Oxford workers are employed in the Manufacturing

sector and 4.3% of Oxford workers are in Construction

The other sector of the economy the Bank is worried about, and an equally important one to the Oxford economy, is the Financial Services industry. Financial Services in Oxford employ 968 people, making up 1.3% of the Oxford working population.

Together with a cut in interest rates, the Bank also announced an increase in the supply of money via a new programme of Quantitative Easing to buy £70bn of Government and Private bonds. Now that won’t do much to the Oxford property market directly, but another measure also included in the recent announcement was £100bn of new funding to banks. This extra £100bn will help the High St banks pass on the base rate cut to people and businesses, meaning the banks will have lots of cheap money to lend for mortgages.  That should have a huge effect on the Oxford property market (a £100bn would be enough to buy over a quarter of a million homes in Oxford).

It will take until early in the New Year to find out the real direction of the Oxford property market and the effects of Brexit on the economy as a whole, the subsequent recent interest rate cuts and the availability of cheap mortgages. However, something bigger than Brexit and interest rates is the inherent undersupply of housing (something I have spoken about many times in my blog and the specific effect on Oxford). The severe under-supply means that Oxford property prices are likely to increase further in the medium to long term, even if there is a dip in the trajectory of growth in the short term. This only confirms what every homeowner and landlord has known for decades - investing in property is a long term project and as an investment vehicle, it will continue to outstrip other forms of investment due to the high demand for a roof over people’s heads and the low supply of new properties being built.

For owner-occupiers in Oxford the most challenging step is to get on the first rung of the ladder.  Once they buy they can continue to have confidence that the value of their asset will rise.  Taking advantage of lower mortgage rates (and several high street lenders have launched well valued fixed interest offers since the Bank of England rate cut) and if eligible shared ownership models remain a sensible option.  For buy to let investors there are also terrific new fixed rate loans available (e.g. Aldermore’s 2.99% 5yr fixed rate at 70% LTV) suggesting that many lenders still see excellent investment returns to be available.  In Oxford, landlords should take a long-term view combining capital appreciation with rental yield returns to assess their investments. 

Those who stay focused on the financial fundamentals of the Oxford market rather than the scare mongering stories in the press, will continue to find excellent returns and steal a march on those who hesitate.