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.