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Monday 19 December 2016

Why a ban on tenant fees is the last thing Oxford’s tenants need


Let’s be honest, Oxford is an expensive place to rent.  In fact, beyond the very high cost parts of London it has the largest gap between average income and house prices in the UK.  With this in mind the Chancellors recent announcement on tenant fees would surely be welcomed as good news right? Maybe not when the implications are truly considered.

To pass a credit reference check, a tenant must be able to prove that they can afford the rent which is determined based on their annual income. Typically, this is calculated by a tenant’s annual income being 30 times the monthly rent i.e. for a rent of £1,000 per calendar month, the tenants’ will need to prove that their combined income is at least £30,000 per annum.

Whilst the actual multiple required might vary between landlords, the basic principle above is the ‘acid test’ for affordability.  If, the tenants are below the required level of income, some landlords will allow them to pay a proportion of the annual rent in advance to ensure that subsequent monthly payments fall within the affordability threshold.

At Martin & Co Oxford, an average property has a rent of £1,196 per calendar month.  Using the measure above that requires the tenants to have a joint income of £35,880 per annum.  At the time of writing the average income in Oxford is around £26,500 meaning that most couples require two incomes to rent an average Oxford home making it difficult for them to afford.

For tenants, is it preferable to pay a fee of £300 at the start of their tenancy or for the rent to rise by 5% per annum?  Already rents in Oxford rise on average by 3% per annum according to trend data from the last 5 years.  So, in 2017 the average rent of £1,196 per calendar month mentioned above can be expected to rise by £36 per month.  Should rents rise by a further 2%, as many predict will happen as a result of the ban on tenant fees, that increases to £60 per month or £720 in total i.e. £288 per annum above trend.  So, at face value, tenants will be slightly better-off – they save £300 in tenant fees, and pay £288 more in rent, meaning they are £12 to the good.  But is that preferable?  To qualify as being able to afford a property at the new higher rent those same tenants will need to earn an additional £1,800 per annum - an increase of 5% yet incomes in Oxford are rising at nearer 2% per annum.  So, anything that results in the affordability gap widening further risks tenants failing to qualify for new tenancies, or having to find much larger lump sums in advanced rental payments to make-up any income shortfall.

The current model where a tenant pays £300 at the start of their tenancy is preferable for many as it is a sum which they can afford, and it falls outside of the assessment of their ability to afford the rent during the term of the tenancy.  In the example above where income increases by 2% and rent increases by 5%, they will fall short by £1,082 per annum.  In this situation they will either be deemed unable to afford the property, or be required to pay the shortfall up-front, or be required to find someone prepared to stand as a guarantor.  When considered in this way, for many tenants a known and defined up-front fee is always preferable.

Our concern as one of the main agents in Oxford is the affect that the ban will have on both tenants and landlords. We want landlords to continue to be able to invest in property providing homes for people when Oxford is most in need, and we want tenants to be able to be successful in applying for properties that they want to make their home.

Saturday 17 December 2016

Energy efficiency regulations – 8% of Oxford rented homes unrentable by 2018?


Around one in 12 properties Nationally that are currently available to rent could become unrentable if the Government’s energy efficiency plans go ahead according to Quick Move Now.

In Oxford, 8% of rented properties equates to around 1,400 homes. According to the Royal Institute of Chartered Surveyors a figure close to 18,000 more people will require rented property over the coming 7 years which equates to a requirement for a further 7,400 homes.  If 8% of the current stock is unrentable the need for new rented housing increases to 8,800 - at least until those homes with a poor energy rating can be brought up to standard i.e.  a minimum rating of E on the energy performance rating.

Oxford City Council is offering landlords free energy performance audit to landlords.  Anyone uncertain about whether they will be compliant with forthcoming rules should take up this offer so they have time to undertake the necessary works to bring their property above the minimum E rating.

Friday 16 December 2016

Oxford Property in 2016 and 2017 – under-supply continues to dominate


2016 has certainly been eventful!  Oxford found itself at odds with the national vote for Brexit, Donald Trump’s election-win is causing many to fear for the future and…the Bake Off moved to Channel 4.  At least the Oxford property market provided some certainty.



Last month, Oxford property values rose by 0.31%, leaving them, year on year 7.1% higher, whilst Oxford asking prices are down 2.0% month on month. As I predicted, Oxford property has recovered well after a summer lull and, according to Zoopla, the average value of an Oxford home is now £509,000.



Oxford asking prices continue to hold up well, up 4.7% year on year, despite the pre-Christmas fall.



In Oxford, the volume of property sales has fallen slightly, suggesting a slowing market.  But, it’s interesting to take note of a recent survey by the Royal Institution of Chartered Surveyors (RICS), stating new buyer enquiries and new instructions are falling at the same rate, suggesting limited downward pressure on property values.



Across the UK, property values are generally rising more slowly.  Rather than a Brexit effect, I believe this is mostly related to affordability.  The gap between average income and average property price is widely seen as a natural correction factor for house prices, and this remains a critical issue in Oxford - one of the least affordable places in the UK to buy a home.



On the other hand, interest rates remain at a record low of 0.25%. The cut in interest rates in the late summer was the medicine for uncertainty, but, due to stricter lending criteria, affordability trumps low interest rates for many first-time buyers, benefitting older more affluent buyers disproportionately, with continuing stagnation at the bottom of the market.



 So, what will happen in 2017 in the Oxford property market?



Some say until we know what type of exit the UK will make from the EU it is hard to evaluate with certainty. I believe, the whole Brexit issue is a sideshow to the main issue in the Oxford which is demand for homes outstripping the supply of houses.  Oxford ranks 5th nationally for gross value-add and 8th nationally for population growth.  32% of Oxford’s population is aged between 18 and 39 years, and 30% of the population live in private rented accommodation.  Neither house building nor availability of rental homes is keeping pace with demand, and I believe this will worsen during 2017.  Whilst it is great news for Oxford that it will become better connected to Cambridge (bridging the two great knowledge economies in England), it will only increase demand to live and work in our great City.  Instead of bashing landlords in the mistaken belief they are helping tenants, Government needs to go the hard-yards – building 3 times as many new houses AND stimulating new rental supply across Oxford’s post codes.

Is it worth using a letting agent?



I was interested to read an article in Letting Agent Today this morning detailing the results of a survey conducted by Endsleigh the insurance company.  Their survey suggests that on average a letting agent saves a landlord an estimated £1,910 a year.   At a time when landlords are feeling financially bruised due to Government legislative changes, it is interesting to note that landlords should trust the value for money offered by letting agents. 

The survey suggests that of those landlords who believe they save money by not using a letting agent, the average sum ‘saved’ on fees was £159 per month. 

However, comparative analysis of the rental income and void periods for those landlords with, vs. those without agents suggested that agents saved their clients an average of almost £2,000 per annum.

Most of the savings for landlords are created by agents minimising void periods when compared to landlords who go it alone marketing their property.

Some 76 per cent of respondents to the survey reported that their agent helped them pro-actively find tenants, as well as providing other services such as help with legal and financial matters and so contributing to a reduction in overall costs.

The survey suggests that relationships between letting agents and landlords are not about financial benefits alone.  Of those landlords who use an agent, 50 per cent were most attracted because of their local knowledge, 41 per cent feel the main benefit of working with an agent is that it provides peace of mind, and 25 per cent say they communicate with their letting agent on a weekly basis.

I admit, as the owner of a letting agent, I have a vested interest in this survey. However, I recently had cause to list the main services that my agency provides to landlords, and it is a surprisingly long list of different services.  Over recent years, legislation that applies to landlords has become more complex, and more significant in terms of sanction.  A key part of our service is to keep abreast of legislation and to assist our landlords to work effectively within the law to optimise their own position, particularly at times when a tenancy has become difficult.

It is also interesting to me to note that the survey confirmed a point I have raised with landlords recently – that the cost of void periods far outweigh other costs associated with letting property.

As landlords move into 2017, it is a timely reminder of the broad and important services that letting agents provide to their clients, which saves them money and assists them to sleep easier at night.

Friday 9 December 2016

Average Rents Paid by Tenants in Oxford rise to £2,490 per month


Back in the Spring, there was a surge in Oxford landlords buying buy to let property in Oxford as they tried to beat George Osborne’s new stamp duty changes which kicked in on the 1st April 2016. To give you an idea of the sort of numbers we are talking about, below are the property statistics for sales either side of the deadline in OX2.



Jan 2016 – 42 properties sold

Feb 2016 – 27 properties sold

March 2016 – 91 properties sold

April 2016 – 19 properties sold

May 2016 – 23 properties sold



Normally, the number of sales in the Spring months is very similar, irrespective of the month. However, as one can see, this year was a completely different picture as landlords moved their purchases forward to beat the stamp duty increase. You would think that even with a basic knowledge of supply and demand economics, rents would be affected in a downwards direction?



However, there appears to be no apparent effect on the levels of rent being asked in Oxford - and more importantly achieved - and this direction of rents is not likely to reverse any time soon, particularly as legislation planned for 2017 might reduce rental stock and push property values higher. The decline of buy to let mortgage interest tax relief will make some properties lossmaking, forcing landlords to pass on costs to tenants in the form of higher rents just to stay afloat. Even those who can still operate may be deterred from making further investments, limiting the growth in available rental stock at a time of severe property shortage.



But it’s not all bad news for tenants. Whilst average rents in Oxford since 2005 have increased by 22.6%, inflation has been 38.5% over the same time frame, meaning Oxford tenants are 15.9% better off in real terms when it comes to their rent (which is a sizeable chunk of most people’s monthly household budgets)



Year
Average Rent in Oxford per month
2005
2030
2006
2077
2007
2123
2008
2193
2009
2227
2010
2196
2011
2249
2012
2300
2013
2334
2014
2369
2015
2421
2016
2490





I found it particularly interesting looking at the rent rises over the last five years in Oxford, as it was five years ago we started to see the very early green shoots of growth of the Oxford economy.  Following the Credit crunch (2011), rents in Oxford have risen by an average of 2.4% a year – fascinating don’t you think?



The view I am trying to portray is that while renting is often portrayed as the unfavorable alternative to home ownership, many young Oxford professionals like renting as it gives them flexibility in their life. Overall, tenants have had a good deal with below inflation increases in rents over recent years. As Government policy targets landlords financially, it is likely that there will be a period of higher rent increases across Oxford, as landlords off-set the additional costs being imposed on them.  The data suggests a small rebalancing between tenants and landlords is overdue, and can be accommodated without driving rent above the medium term inflation trend.




Tuesday 6 December 2016

Oxford Housing Crisis? Only 1.9% of Oxford Homes Are For Sale


The Oxford Property Market is bucking the predicted post-Brexit fallout with a return to business as usual after the summer break. Unfortunately, that means a lack of choice continues.  The volume of available homes is still well down on what would be considered healthy levels last seen earlier this decade, meaning the substantial demand/supply imbalance continues. Until we start to see consistent and steady increases in properties coming on to the market in Oxford, the market is likely to see upward pressure on property values continue.



However, there may be hope for first time buyers, with homeowners looking to move upmarket and buy to let landlords looking for their next investment, the Oxford property supply crisis just might be starting to ease, as the number of new properties coming onto the market in Oxford has increased.



For example, last month OX2 saw 84 new properties coming on to the market, not bad when you consider for most of the last year the figure was in the late 60’s / very early 70’s. With the average available Oxford property value hitting a record high, pushing ever closer to £500,000 according to my research, this shortage of properties over the last two years has contributed to this ‘fuller' average property figure, but there is a glimmer of hope that the Oxford's supply crisis may be starting to ease.



1.95% of Oxford properties are up for sale. In terms of actual chimney pots, that equates to 871 properties on the market in Oxford (within 4 miles of the centre of Oxford) – which, when compared to only a year ago when that figure stood at 810, is a serious increase in the number of properties available to buy. Split down into the type of property (where known), it makes even more fascinating reading:

 

·       Detached Properties in Oxford  - 180 on the market a year ago compared to 187 on the market now – an increase of 4%

·       Semi Detached Properties in Oxford - 281 on the market a year ago compared to 302 on the market now - an increase of 7%

·       Terraced Properties in Oxford - 147 on the market a year ago compared to 166 on the market now - an increase of 13%

·       Flats / Apartments Properties in Oxford  - 173 on the market a year ago compared to 191 on the market now - an increase of 10%



This is evidence of strength in the Oxford housing market that many didn't expect. This may mean property values won't continue to grow at the same extent they have been over the last 12 to 18 months, and in some months (especially in the run up to Christmas and early in the New Year), values might dip slightly. This won't be down to Brexit but a natural re-balancing of the Oxford Property Market – which is good news for everyone.