Tenant right to sue landlords

The Ministry of Housing, Communities & Local Government yesterday announced that it will support a Private Members Bill proposed by Karen Buck MP, which would enable tenants in England and Wales to take legal action against their landlord if their rental property is in poor condition. Secretary of State for Housing Sajid Javid MP has backed Homes (Fitness for Human Habitation and Liability of Housing Standards), which is expected to have its second reading on Friday. The bill states: that all landlords (both social and private sector) must ensure that their property is fit for human habitation at the beginning of the tenancy and throughout; and where a landlord fails to do so, the tenant has the right to take legal action in the courts for breach of contract on the grounds that the property is unfit for human habitation As part of attempts to drive out rogue landlords and raise property conditions, the government has already introduced a range of powers for local authorities. April 2018 will see both the introduction of a database of rogue landlords and property agents convicted of certain offences and banning orders for the most serious and prolific offenders. I believe that this future legislation is targeting genuine rogue landlords, however, landlords should keep an eye on how this develops.  There is already a discernible trend of tenants being more willing to complain, raising complaints with The Property Ombudsman, even where the causes of their complaint (often damp and mould related) is caused by condensation resulting from their own way of living.  Proactivity is the order of the day - provision of advice to rectify condensation, treat mould and manage ventilation and inspection to monitor its implementation is key.

Oxford Rents Set to Rise to £2,338pm in Next 5 Years

It’s now been close to 18 months since annual rental price inflation in Oxford peaked at 3.4%. Since then we have seen more humble rent increases. In fact, in certain parts of the Oxford rental market over the autumn, we have seen some slight reduction. So, could this be the earliest indication that the trend of high rent increases seen over the last few years, may be running out of steam?

Well, possibly in the short term, but in the coming few years, it is my opinion that Oxford rents will regain their upward trend as demand for Oxford rental properties outstrip supply, and this is why.

The only counterbalance to rental growth would be an increase in rental stock (i.e. the number of rental properties in Oxford). However, because of the Government’s new taxes on landlords being introduced between 2017 and 2021, buy-to-let has (and will) be less attractive in the short term for certain types of landlords (meaning fewer new properties will be bought to rent).

Interestingly, countless market experts assumed at the start of 2017, that the number of rental properties would reduce throughout the year. The assumption being as the new tax rules for landlords started to kick in, landlords would look to serve notice on tenants, sell up and invest their capital elsewhere.

Anecdotal evidence suggests, confirmed by my discussions with fellow property, accountancy and banking professionals in Oxford, that Oxford landlords are actually either re-mortgaging their Oxford buy-to-let properties instead or converting their rental portfolios into limited companies to side step the new taxation rules.

The sentiment of many Oxford landlords is that property has weathered economic shocks well in the past, and there is something inheritably understandable about bricks and mortar – compared to the voodoo magic of the stock market and other exotic investment vehicles like debentures and crypto-currencies.

Remarkably, there is some good news for tenants, as the Government recently published the draft Tenants’ Fee Bill, which is designed to prohibit the charging of tenants lettings fees on set up of the tenancy. However, looking at evidence in Scotland, I expect rents to rise to compensate landlords, thus hammering faithful tenants looking for long-term tenancy agreements the hardest. This growth will be on top of any usual organic rent growth.  It really is swings and roundabouts!

Rents in Oxford over the next 5 years will rise by 9.2%, taking the average rent for a Oxford property from £2,141 per month to £2,338 per month.

Rents in Oxford over the last 12 years have risen by 21.5%. I don’t expect the future rise to be a straight-line either, because I have to take into account the national and local Oxford economy, demand and supply of rental property, interest rates, Brexit and other external factors. Please see the graph for my projections

In the past, making money from Oxford buy-to-let property was as easy as falling off a log. But with these new tax rules, new rental regulations and the overall changing dynamics of the Oxford property market, as an Oxford landlord, you are going to need to work smarter in the future and keep abreast of information, advice and opinion to hand on the Oxford, Regional and National property markets.

Captial gains tax hike for BTL comapnies hidden in the budget

The BBC reports that there is a Capital Gains Tax measure buried in the small print of the Budget which is likely to hit companies that own buy to let properties.

Individuals who own more than one property - for buy to let or other purposes - pay 40 per cent CGT on the total the property appreciated when they come to sell it. Companies, on the other hand, have been allowed to deduct the amount of that price rise that was due to inflation. 

The BBC gives the example that if a flat was purchased for £100,000 for the purposes of letting out, and was 10 years later sold at £200,000, the individual who owned it would have to pay £40,000 CGT - that is, of course, 40 per cent of the £100,000 profit.

However, if a company purchased the same property for £100,000 and inflation had been at three per cent for that 10-year period, inflation would have accounted for £34,000 of that price rise.  

Then the company would only pay 40 per cent CGT on the rest of the rise - so it would be 40 per cent on the remaining £66,000 price rise. Therefore in that case the CGT would be £26,400 rather than £40,000.

However, the BBC reports that it now appears that from January 2018 that discrepancy will be eliminated. 

The change will only affect price rises from January of next year, so companies will not pay extra on the gains they have already made.

The BBC says property is not the only asset this new tax hike affects, but comes on top of a series of measures in recent years which can be seen as attacks on buy to let.

In the past 18 months, many individual buy to let landlords have incorporated, setting up companies owning their investment properties in a bid to reduce the liability of mortgage interest tax relief, which is being phased out for landlords.

What do Oxford’s landlords, and tenants need from the budget this week?

As usual there is no shortage of sensational headlines about the importance of the budget for the Government, and for key Departments including Health, Work & Pensions and Defence.  However, for Oxford’s tenants it is the headlines about house building that are the most important, and Oxford’s embattled private landlords it will hope that the budget doesn’t pile further pressure and expense on them.

In Oxford, whilst prices achieved for sold houses has continued to rise (with most recent data confirming a 6% rise in achieved prices over the last 12 months when compared to the prior year), the total number of transactions (the number of houses successfully sold having been put on the market) has fallen by 17% to just 2,702.  It is this statistic that should worry everyone.  I believe that the fall in the number of transactions is in part due to lower levels of house purchase by private landlords, which in turn means that future supply of new rental properties is not growing to keep pace with demand.

Regular readers of my column will know that I have identified a growing level of demand in Oxford for small family homes for rent.  As ‘first-time’ tenants start to plan their families and out-grow their homes, they have a requirement for 3-bedroom properties in areas with nursery places, good transport links and easy access to supermarkets and other shops.  In Oxford, this is currently under-supplied in the rental sector, with many suitable properties instead targeting multiple tenants rather than families.

Without such provision, and with 3 bed properties remaining prohibitively expensive to buy, these young families will either need to look outside of Oxford or look for affordable new build within Oxford.

Over the last 12 months in Oxford just 82 new build properties were sold, that’s just 3% of total transaction in the same period.  Of those new build, 51 were larger detached properties and just 12 the terraced or semi-detached homes which tenants with young families are most likely to target.

This double-whammy - a lack of new investment by Oxford’s private landlords and a dearth of suitable new build - will create a pinch-point for Oxford’s private renters at a time when demand for rental properties has never been higher.  The lack of supply is clearly responsible for house prices remaining buoyant at a time when total transactions have fallen so dramatically.  Oxford is a supply-constrained market, and as a result as landlord costs increase they are likely to result in higher rents.

Following the introduction of a stamp duty surcharge for owners of multiple properties, and the restriction on landlords’ ability to off-set the costs of borrowing when calculating their income tax, the Government has no fewer than 15 ongoing consultations in parliament which could further affect the private rented sector, but not help to deliver more new homes that Oxford so desperately needs.  Instead, they will make landlord compliance more difficult, increase the costs that landlords’ have to bear and, further discourage good ethical landlords from investing further in Oxford at a time when their investment is most needed.

Oxford Homeowners and their £2.78 billion Debt

The housing and mortgage market has shown a noteworthy resilience. There has been a notable improvement of macro-economic conditions - in July, for example, it was announced that we are witness to the lowest levels of unemployment for nearly 50 years. Furthermore, despite the UK construction industry building 21% more new properties than last year, there has still been a disproportionate increase in demand for housing.  Repossessions too are also at an all-time low at 3,985 for the last Quarter from a high of 29,145 in Q1 2009. All these things have resulted in property values in Oxford being 6.4% higher than a year ago according to the Land Registry.

So, what does all this mean for the homeowners and landlords of Oxford, especially in relation to property prices moving forward?

One vital bellwether of the property market is the mortgage market. The UK mortgage market is worth £961,653,701,493 (that’s £961bn) and is representative of 13,314,512 mortgages (the UK’s mortgage market is the largest in Europe in terms of amount lent per year and the total value of outstanding loans).

Uncertainty causes banks to stop lending – it took a few months throughout the autumn of 2007, before the credit crunch started to hit the Oxford property market, but in late 2007, and for the following year and half, Oxford property values dropped each month causing Oxford property values to drop by 22.9%

Thankfully, after a period of stagnation, the Oxford property market started to recover in 2011 as certainty returned to the economy and Oxford property values really took off in 2013.  Throughout 2016, we saw a return to realistic and stable medium-term property price growth, and now property prices have recovered in Oxford and are now 85.6% higher than they were in 2009.

During the summer of 2017, with the Conservatives having been re-elected on their slender majority, the Oxford property market has experienced some softening, but now appears set to avoid the negative growth experienced in London.  There has been some aggressive competition among mortgage lenders, which has driven mortgage rates down to record lows, which is good news for Oxford homeowners and landlords with the rates on new deals at the lowest they have ever been.  For example, last month, HSBC launched a 1.69% five-year fixed mortgage!

Since 1977, the average Bank of England interest rate has been 6.65%, making the current rates a of 0.25% very low indeed – in fact it is a 323-year record. Thankfully, the proportion of borrowers fixing their mortgage rate has gone from 31.52% in the autumn of 2012 to the current 59.3%. If you haven’t fixed – maybe you should follow the majority?

In the Oxford postcodes of OX1 to OX4 & OX33, if you added up everyone’s mortgage, it would total £2,785,488,264.  If Bank of England rates returned to their trend rate of 6.65% current Oxford borrowers would have to find £178.3m more to just to keep-up their payments

In my opinion, interest rates can only go one way from their 300-year ultra 0.25% low level.  Maybe, just maybe, you might want to consider taking some advice from a qualified mortgage adviser to lock-in the historically low rates.

Agents remain a little pessimistic about the lettings market

Around one fifth of all households in England and 14% of households in Scotland and Wales live in private rented accommodation. Using results from the monthly Royal Institute of Chartered Surveyors survey of agents, above I look at how agents view the current state of the rental market. Much like the sales market, the quarterly (seasonally adjusted) figures from the RICS survey suggest a subdued rental market.

Nationally, agents report a marginal increase in tenant demand over the quarter but at its lowest rate for nearly twenty years. Over the same period, landlord instructions declined, with a net balance of agents reporting a fall in listings. The story was reversed in London where a small net balance of agents reported a rise in listings but a fall in tenant demand. Affordability remains a key pressure on the London market.

Agents expect rental growth to be low over the coming months and in London agents continue to expect rents to fall. Back in October 2016, a net balance of 28% of agents expected average rents to rise over the following quarter but by July 2017 the net balance expecting rental growth in the next quarter was just 10% - the lowest level since mid-2009. For the sixth consecutive month agents across London expect prices to fall, with a net balance of agents across both the South East and Scotland also anticipating decreases.

While agents’ expectations are low for the short term, the outlook improves over the longer term. Nationally rents are expected to rise by just under 2% over the next year, but rise to an average of just over 3% per annum by 2022.

In Oxford, this National picture has been mirrored.  Rent increases at tenancy renewal has been muted and well below the 2 to 3% average growth of recent years.  Demand since April 2017 through to the end of July 2017 has been below the level achieved in the same period last year.  However, August has been strong month, with demand strong and the number of relets returning to the level experienced in 2016.  Overall, the market has become more ‘last minute’ with applicants looking to move in to properties within 4 weeks of making an offer, which is causing some landlords to get rather nervous as it is a change on the more usual 6 to 8 weeks between offer and move-in.

Whilst demand in August has been good, rent increases continue to be subdued.  There are signs that August demand will push in to September, further indicating that prospective tenants have waitd as long as they dare before committing to a new tenancy.

Oxford rent rises predicted after brief lull

Rents in Oxford for new tenancies fell by 0.4% in the last 12 months (i.e. not existing tenants experiencing rental increases from their existing landlord). When we compare that current rate with the historical rental inflation in Oxford, an interesting pattern emerges:

·       2016 - Rental Inflation in Oxford was 5.1%

·       2015 - Rental Inflation in Oxford was 9.4%

·       2014 - Rental Inflation in Oxford was 3.2%

The reason behind this change depends on which side of the demand/supply equation you are looking from. On the demand side (from the tenants point of view) there is the uncertainty of Brexit and the fact that salaries are not keeping up with inflation for the first time in three years. Critically, this means tenants have less disposable income to pay their rent. As an aside, it is interesting to note that nationally, rent accounts for 29% of a tenant’s take home pay (Denton House).

On the supply side of the equation (landlords point of view) Brexit also creates uncertainty. However, the biggest issue was a massive upsurge of new rental properties coming on to the market in late 2016, caused by George Osborne’s new 3% stamp duty tax for landlords in the first part of 2016. This meant a lot of new rental properties were ‘dropped’ on to the rental market all at the same time. The greater choice of rental properties for tenants curtailed rental growth/inflation. A slight softening of Oxford property prices has compounded this.  Figures from The Bank of England suggested that first time buyers rose over the last 12 months as some were more inclined to buy instead of rent. Together, these factors played a part in the ongoing moderation of rental growth.

The lead up to the General Election in May didn’t help: after all people don’t like doubt and uncertainty.  Whether it be ‘hard’ or ‘soft’ Brexit negotiations (and with the Election result the Tories might have to be ‘softer’ on those negotiations) the simple fact is, we aren’t building enough properties for us to live in. Both in Oxford, the South East and the wider UK, long-term population trends imply that rents will soon once again be growing faster than inflation again. Look at the projections by the Office of National Statistics.

Tenants will still require a vibrant and growing rental sector to deliver them housing options in a timely manner. As the population grows in Oxford, any restriction to the supply of rental properties (brought about by poor returns for landlords) cannot be in the long-term best interest of tenants. Simply put, rents must go up!  But, with rents already accounting for 29% of a tenants’ disposable income, the ability for most tenants to absorb a rent increase does exist.  It is for this reason, that I believe Government policy which is increasing costs for landlords (removal of mortgage interest rate relief; stamp duty surcharge; and, ban on fees charged to tenants) is short-sighted and poorly considered.

What is happening with Oxford house prices?

In my article last week, I promised to widen the net of my research to see whether there was a noticeable trend in the way house prices around Oxford are currently performing.  The table below summarises the findings of my research, using Rightmove data for houses that sold and were listed over the last 12 months.

The recent reports by the Royal Institution of Chartered Surveyors (RICS) states that the slowdown in the housing market is spreading from London to other parts of SE England.  It also observes that the most expensive homes are particularly likely to have seen cuts in asking price before being sold.  RICS points to a series of changes to tax policy which has particularly impacted buy to let investment, and a continued lack of new-build properties weighing on the market.  Other commentators have pointed to stamp duty discouraging older owner-occupiers from down-sizing as another drag on house availability.

Looking at Oxford specifically, there is evidence that the most expensive parts of Oxford are under-performing.  The notable exception being Cumnor, where some new build and strong activity have impacted the overall trend for that part of town. Whilst overall, there is a stronger trend of house price growth in the parts of Oxford which are below City average values, it is a very mixed picture.  Headington, Blackbird Leys and Greater Leys have out-performed the City average whilst Wolvercote, Marston and Cowley are close to the overall average, with Botley and Barton performing particularly poorly when compared to the prior 12-month period.

Of course, when looking at data like this it is important to consider the local factors that could have affected housing prices.  For example, Wolvercote has recovered from a negative position 12 months ago, reflecting the completion of road works that had previously dragged on prices.  Barton, may well be experiencing some drag due to the new houses coming on stream, causing people to delay their move waiting for the new stock to come on stream, or avoiding the area due to the works.

Overall, there is some evidence that it will be the top-end of the property market in Oxford that will feel the pinch earliest.  And, as I have commented over the last several months, Oxford is experiencing a 19% reduction in house sale transactions, and continues to suffer from an under-supply of new build homes.  There are some vendors who are also disregarding the price sensitivity in the market, holding-out for unrealistic offers, in a market that has become far more price sensitive.

Across these parts of Oxford the average increase inhouse prices over the last 7 years is 14.9% which rises to 18% if Boars Hill is removed from the calculation.  Oxford as a whole has averaged 20% increases since 2014.

In summary, it is far too soon to panic, but vendors need to be realistic with the price they offer making sure they benchmark well with comparable properties on the market.

Oxford is a favourite place for people moving out of London

The number of people leaving the capital has reached a 5-year high, with net departures to homes elsewhere in the UK reaching 93,300 people in the year to June 2016 – an increase of more than 80% on five years previously according to the ONS.

Apart from people in their 20’s there is a net outflow across all age groups with thirty-somethings being most likely to look for somewhere more affordable to buy a family home.

Those who live in the Capital’s richest boroughs are more likely to move to more affluent areas.  People in Kensington and Chelsea tending to move to Cambridge; Westminster residents heading to Oxford and those in Hammersmith and Fulham moving to Elmbridge in Surrey.  Other popular places for relocation include St Albans and Slough.

It is perhaps no surprise that the popular new places remain within communing reach of London, and have vibrant community, social and cultural attractions.  As I have predicted in this blog, these people are looking for family homes or 3 beds or more, ease of access to train and road links to London, and proximity to open spaces, supermarkets and social venues. I expect to see these properties to increase in popularity for both buyers and renters over the coming 2 or 3 years.

Is the Oxford Property Market stalling?

Everyday thousands of column inches are being used to make comment on the UK housing market.  As is usually the case, the headlines are overwhelmingly full of foreboding – after all good news doesn’t sell!  But, what is the true picture for Oxford?

Oxford remains the UK’s least affordable city for residents to buy a house, with an average house costing over 16 times average income.  So Oxford is prime for the building of new homes right?  Well, no!  Over the last 3-month period new build homes in Oxford accounted for just £1.27m of £217m value of homes sold in the City – that’s just over half of 1%!  And, therein lies the real challenge for Oxford, which now has 45,000 people commuting daily many traveling because they can’t afford to live closer to their workplace in the City.  This in turn is causing road congestion, rail congestion and long bus journeys.  It is driving a new growth segment in the Oxford rented sector – that being professional Houses in Multiple Occupation (HMO) – shared houses for young professionals who can not afford to buy or rent their own property, but no longer want to live like they did as a student.

So, house sales are booming then?  Well, no!  The table below shows data for key Oxford post codes, over the last 12 months, compared with the 12 months previously.  The analysis shows that whilst prices have continued to rise for the most part, transaction volumes a down significantly, suggesting that more people are staying put, with fewer people being able to buy a home in the City.  To date, prices have held-up strongly, because the reduced supply is balancing-out any reduced demand for new homes.  However, in April Hometrack UK City index reported that Oxford had slipped into negative house price growth, with the May 2017 report just tipping into positive territory at 1.6% year on year (YoY) growth vs. 8.2% YoY growth in May 2016.

Postcode/Town	Average value (£)	% change in value	Number of transactions	% change in transactions
OX1	460,407	12%	214	-48%
OX2	538,814	2%	490	-29%
OX3	406,212	7%	372	-37%
OX4	345,006	6%	578	-27%
OX5	344,416	-1%	366	-9%
Bicester	329,745	6%	1,077	-13%
Banbury	292,016	7%	2,756	-16%
Abingdon	328,638	6%	3,873	33%
South East England	307,611	9%	30,325	-51%

An important part of the Oxford property market is accommodation for the City’s 30,000 students.  With Universities announcing increases in tuition fees, and a net reduction of 4% in student applications with applications from the EU down over 5%, the City may experience a surplus of student accommodation, reversing the under-supply of recent years.  Together with the ban on fees charged to tenants by landlords and their agents which will be introduced by the Government, the City’s student landlords are certain to experience greater competition when attracting tenants, and an increase in costs.  The best way for such landlords to compete will be to invest in their properties offering better fixtures, fittings and décor, reflecting feedback from their agents about what students demand.  For many, it may be more sensible to re-fit and re-configure their property to appeal to the growing market for professional sharers mentioned above.  This sector demand en-suite facilities, large double bedrooms and well fitted, large communal kitchens.

In summary, Oxford prices have held-up to date, but show signs of weakening.  Oxford remains top of the charts for unaffordability, and the continued lack of new-build affordable homes is pushing demand to outlying towns and villages.  Demand for rented accommodation is changing, and the City is suffering reduced demand from foreign nationals wishing to live and study in the City.

Oxford property prices

This article was published in the Oxford Mail on 20/07/2017 and is re-published in full).  
Hi everyone, I thought the article below would be of interest!

OXFORD has been highlighted as one of five top growth areas for house prices over the past decade.
Growth in UK house prices has slowed in 2017 but new figures released by the UK House Price Index showed prices in Oxford rose by 43.5 per cent over the past decade.
Cambridge showed the second-highest increase over the decade with a 55.9 per cent increase, behind London with 61.7 per cent.

In Oxford in 2007/2008 the average house price in Oxford was £289,855, compared to £415,527 in April.

Kate Faulkner, property expert on website propertychecklists.co.uk, said: “It’s clear that property prices continue, in the main, to slow.

“Rightmove’s lead indicator on how sellers are feeling suggests that asking prices have reduced for the first time since 2009, although there is a ray of light coming from Nationwide and Hometrack, suggesting a slight uptick this month.

“In reality, what we are seeing is a natural slowdown from the recovery in the South and East, while in the rest of the UK prices have done well in the last few years, albeit not as robust as their southern and eastern counterparts.”

Ms Faulkner added that property market analysts Hometrack said this month that “the annual growth rate in London (3.3 per cent) was at the lowest for five years, but with signs of ‘bottoming out’.
The cost of the average home nationwide still increased by 4.7 per cent in the year to May 2017.
Office for National Statistics figures showed a drop from the 5.3 per cent rise in the year to April, with the average UK house price £221,000 in May.

Landlords, review your borrowing, lock-in low interest rates and beat the September PRA changes that will restrict your access to funds

The next round of the Prudential Regulation Authority (PRA) changes are on the horizon, with portfolio landlords (with 4 or more properties) set to feel the most impact. We understand that the new rules will include properties owned by all entities, both personal and Limited Company. New rules mean that lenders will consider the whole portfolio when calculating stress tests.


Apparently, each property will be stressed at 5.5% - even properties not subject to the loan, which could have an impact on the amount landlords will be able to borrow.

Martin & Co Oxford work closely with London & Country the UK mortgage broker with the largest panel of lenders.  With interest rates at an all-time low, and with commentators expecting the next move to be up, there has never been a better time for landlords to review their borrowing arrangements to beat the more restrictive rules that will be introduced in September, maximising their borrowing, and locking-in the current favourable rates.

If you feel you might benefit from re-financing, either give us a call on 01865 812110 to ask us to arrange for a London & Country experienced mortgage consultant to call you for a confidential telephone assessment of your needs.  Or, call London & County direct providing reference 'Martin & Co, Oxford' by calling 0800 953 0304.

Historically UK borrowers have been reluctant to change their lender, but just like your utility provider, the best deals often result from switching, and at a time when landlord costs are rising, saving £00's per month or borrowing additional £000's can make the difference between growing a portfolio and not.  You lose nothing by calling and finding-out.

How is Oxford’s rental market changing?

In Oxford, like the rest of England, around 20% of all homes are now rented.  A recent survey of people showed a decrease in the proportion of young people (under the age of 35) who own their own home, and separately another study showed an increase in the number of people who don’t ever expect to own a home.  Of greatest concern to first time buyers is their ability to save for the deposit required under the new mortgage lending rules.

So, what does this mean for Oxford’s private rented sector?  Firstly, growth in demand in the City seems likely to be sustained over coming years.  Whilst UK government policy is making life financially harder for landlords, it reflects a recognition that the private rented sector has become an important and permanent part of the urban housing landscape.  As more and more people depend on private rented homes for longer periods of their life, it has become important for government to appeal to this group of voters by being seen to help them (e.g. via a future ban on fees charged to tenants).  It has also become much more important that the private rented sector can withstand a financial shock.  Bearing down on landlords with high levels of debt by increasing the cost of entry for new investment (via the stamp duty surcharge), and increasing the cost of debt (via the reduction of mortgage interest rate relief; and the introduction of tougher loan to value ratios), should reduce the long-term volatility in the sector.  How? Well, in the short-term as highly geared landlords choose to sell some or all of their portfolios volatility looks set to increase.  This may bear down on property prices for a period, but as far as government is concerned that’s OK – they welcome anything that reduces the cost of housing for owner occupiers.  Their calculation is that over the longer term, professional landlord’s – private and corporate, will fill the void, create a more robust private rented sector with long-term investment strategies and with sustainable levels of debt.

In Oxford, it seems likely that the impact of government policy will be felt more acutely because the entry cost of property is relatively high, the average rental yield is relatively low and landlord returns have been dependent on the capital appreciation of property year on year.  Because of that, rents in Oxford have risen more slowly, as landlords recognized the need to ease the rental cost for tenants during some tough years between 2008 and 2015, relying instead on predictable capital growth.

Looking forward, I believe that a significant trend in Oxford will be an increase in demand for rented family homes.  As tenants either choose not to buy their own property, or feel unable to save for a deposit, they will spend longer in the properties they occupy.  As their families grow they will look for different accommodation that better suits their needs, and location will be determined by different factors such as proximity to schools, access to commuter routes and child friendly open spaces.  Oxford caters well for this maturing and shifting demand.  Places like Littlemore, Greater Leys, Marston & Headington, Hinksey, Osney and Grandpont with their terraced and semi-detached homes offer a wide choice of property for renting families.  Often, such properties have been licensed as houses in multiple occupation by landlords, and whilst that demand will continue, there will be growing demand for well presented, modernized family homes in the City’s private rented sector.

In addition to demand for family homes, I believe that there will be demand for longer tenancies and new models for renting.  I was alerted by a client and blog reader this week to ‘rent to own’ models that have become established in other markets, and which are gaining traction in the UK.  These are long-term agreements between landlords and their tenants, which provide the tenants with security of tenure, and the option to buy at a date in the future.  The landlord benefits from long-term, stable income and an assured future exit.  As government policy tightens, and investment returns reduce, landlords will demand stable, less volatile income streams, over the longer periods of time.  They will accept lower returns provided they are predictable and stable.  Tenants will remain in the rented sector through extended stages of their lives, and will also demand greater security of tenure, the ability to put down roots, personalizing their homes to their needs. 

We property professionals who work with, support and guide our clients with their property investments, need to be ahead of the curve to innovate and allows tenants and landlords to meet each other’s needs by enabling new models to be introduced. Failure to innovate by landlords, tenants and their agents will undermine the private rented market over the coming 5 years.

In Oxford, like the rest of England, around 20% of all homes are now rented.  A recent survey of people showed a decrease in the proportion of young people (under the age of 35) who own their own home, and separately another study showed an increase in the number of people who don’t ever expect to own a home.  Of greatest concern to first time buyers is their ability to save for the deposit required under the new mortgage lending rules.

So, what does this mean for Oxford’s private rented sector?  Firstly, growth in demand in the City seems likely to be sustained over coming years.  Whilst UK government policy is making life financially harder for landlords, it reflects a recognition that the private rented sector has become an important and permanent part of the urban housing landscape.  As more and more people depend on private rented homes for longer periods of their life, it has become important for government to appeal to this group of voters by being seen to help them (e.g via a future ban on fees charged to tenants).  It has also become much more important that the private rented sector can withstand a financial shock.  Bearing down on landlords with high levels of debt by increasing the cost of entry for new investment (via the stamp duty surcharge), and increasing the cost of debt (via the reduction of mortgage interest rate relief; and the introduction of tougher loan to value ratios), should reduce the long-term volatility in the sector.  How? Well, in the short-term as highly geared landlords choose to sell some or all of their portfolios volatility looks set to increase.  This may bear down on property prices for a period, but as far as government is concerned that’s OK – they welcome anything that reduces the cost of housing for owner occupiers.  Their calculation is that over the longer term, professional landlord’s – private and corporate, will fill the void, create a more robust private rented sector with long-term investment strategies and with sustainable levels of debt.

In Oxford, it seems likely that the impact of government policy will be felt more acutely because the entry cost of property is relatively high, the average rental yield is relatively low and landlord returns have been dependent on the capital appreciation of property year on year.  Because of that, rents in Oxford have risen more slowly, as landlords recognized the need to ease the rental cost for tenants during some tough years between 2008 and 2015, relying instead on predictable capital growth.

Looking forward, I believe that a significant trend in Oxford will be an increase in demand for rented family homes.  As tenants either choose not to buy their own property, or feel unable to save for a deposit, they will spend longer in the properties they occupy.  As their families grow they will look for different accommodation that better suits their needs, and location will be determined by different factors such as proximity to schools, access to commuter routes and child friendly open spaces.  Oxford caters well for this maturing and shifting demand.  Places like Littlemore, Greater Leys, Marston & Headington, Hinksey, Osney and Grandpont with their terraced and semi-detached homes offer a wide choice of property for renting families.  Often, such properties have been licensed as houses in multiple occupation by landlords, and whilst that demand will continue, there will be growing demand for well presented, modernized family homes in the City’s private rented sector.

In addition to demand for family homes, I believe that there will be demand for longer tenancies and new models for renting.  I was alerted by a client and blog reader this week to ‘rent to own’ models that have become established in other markets, and which are gaining traction in the UK.  These are long-term agreements between landlords and their tenants, which provide the tenants with security of tenure, and the option to buy at a date in the future.  The landlord benefits from long-term, stable income and an assured future exit.  As government policy tightens, and investment returns reduce, landlords will demand stable, less volatile income streams, over the longer periods of time.  They will accept lower returns provided they are predictable and stable.  Tenants will remain in the rented sector through extended stages of their lives, and will also demand greater security of tenure, the ability to put down roots, personalizing their homes to their needs. 

We property professionals who work with, support and guide our clients with their property investments, need to be ahead of the curve to innovate and allows tenants and landlords to meet each other’s needs by enabling new models to be introduced. Failure to innovate by landlords, tenants and their agents will undermine the private rented market over the coming 5 years.

Oxford to be affected by a fall in student numbers?

The number of students from the EU seeking places at UK Universities has fallen by 7%.  The first fall in over a decade.  A corresponding fall of 5.6% in the number of UK applications for University places seems certain to reduce demand for Oxford's student accommodation during 2017.

The Government's inclusion of foreign nationals studying in the UK within its manifesto promise to reduce immigration to the tens of thousand, seems certain to further discourage and decrease the number of non-UK students coming to our Universities to study.

I believe that the uncertainty caused by Brexit, together with widespread reporting of political emphasis on reducing immigration in the UK, has quickly impacted demand.  Students and their parents have become concerned about the welcome they will receive in the UK, and as a result are looking at alternative opportunities internationally.

Oxford University's Global standing, should mitigate some of this reduced demand for UK Universities, as should Oxford's broader reputation as a City of learning and knowledge.  However, the City will not be immune, and landlord's need to recognise that overall demand seems certain to fall.

Oxford rents rise by 22.6% since 2005

The Oxford Property Market has been particularly fascinating over the last 12 years when we consider what has happened to Oxford rents and house prices.

There’s currently much speculation about what will happen to the rental property market during the Brexit negotiation. I believe we must look what happened in the 2008/9 credit crunch (and what has happened since) to judge rationally the possible ramifications for long-term investors in the Oxford property market. An important, yet overlooked measure is the performance of rental income vs house prices (i.e. the resultant yields over time). In Oxford (as for the rest of Great Britain), notwithstanding a slight drop in 2008 and 2009, property rentals have been gradually and consistently increasing.

The income from rentals has been progressively increasing over the last 12 years. Today, they are on average 22.6% higher than they were at the beginning of 2005. In fact, over the last five years, the average growth has been 2.4% per annum. However, the observant readers will be noting that we are ignoring an important factor – our friend inflation.

Turn the clock back to 2005, and take a property being rented for say £900 a month hat is still being rented at £900 a month today, in Spring of 2017. While the landlord is not getting any less income, £900 is no longer worth as much. Let me explain, in 2005, £900 may have bought a two-week 4* holiday in Italy. Yet, holidays have increased in line with inflation (which has been 38.5% since 2005), so our holiday would cost today £1,246 (£900 + 38.5% inflation = £1,246). Therefore, the landlord could no longer afford the same holiday, even though they have the same amount in pound notes from their rental property.

This means, when we compare rents in Oxford to inflation since 2005, Oxford landlords are worse off today, when they receive their monthly rental income, than they were in 2005 by 15.9% in real terms (rents increased by 22.6% since 2005, less the 38.5% inflation since 2005 – net affect 15.9% drop). 

However, rental income is not the only way that landlords generate money from property as property values typically increase over time. Although in the short term, cash flows are diminishing, many Oxford landlords will be content to off-set that for the increase in capital value.

Property values in Oxford have risen by 77.3% since 2005

This equates to a very strong 6.44% average increase per annum over the last 12 years. This will make those Oxford landlords and investors feel a little better about the information regarding rents after inflation.  6.44% annual return compares well when considered vs alternative financial investments over the same period.

Looking forward, the prospects of making easy money on buy to let in Oxford have diminished.

If you are investing in the Oxford property market, do your homework and do it well. While some yields may look attractive, there are properties in many areas that do not have the solid fundamentals in place to sustain them. If you are looking for capital growth, you might be surprised where the hidden gems really are. Take advice, even ask your agent for a portfolio analysis like I offer my landlords.

Landlord Seminar - Inheritance Tax Planning for Property Investors

1^st June 2017 at 6pm to 7.30pm at The Oxford Spires Hotel

In association with Martin & Co, Oxford & Twomey Wealth Management

Oxford’s landlords own valuable, appreciating assets.  Day to day, the focus is on maximising the income generated from those assets by optimising rental yield and minimising periods of void.  Most landlords expect to retain the ownership of their properties, seeing their appreciating value as an integral part of their plans for retirement, and part of the legacy that they will leave for their children and grandchildren.  In virtually all cases the value of their assets exceed £500,000 in many it exceeds £5m.

I can’t think of any other investment to which so little consideration is given to optimising the investment for tax particularly inheritance tax.  Most people don’t think there is anything that can be done now to better look after future generations, but the truth is that there are some easy, sensible and inexpensive actions that can and should be taken – all it takes is for someone to explain them!

And, that someone is Andrew Twomey, whose business Twomey Wealth Management, is part of St James’ Place Wealth Management partner practice.  Educated in the UK and in Australia, Andrew works with clients in London, Oxford and the Cotswolds to assist them to build, grow, protect and preserve their wealth.  Happily for us, he also has a really great way of explaining things in a simple and action orientated way.

So, if you own one or more properties in Oxford or elsewhere, and you have an inkling there might be more you could do to get your affairs in order -  please come along.  We start at 6pm and will run to 7.30pm, at the Oxford Spires Hotel on the Abingdon Road in Oxford.  Numbers are limited so please email me on info@OxfordPropertyBlog.co.uk to reserve your place.

Oxford landlords, are you ready for MEE?

This weekend marks one year to go before the introduction of Minimum Energy Efficiency Standards.  These will require that private rented properties achieve a minimum ‘E’ rating for energy efficiency from April 2018.

Over the last 12 months, tenants living in private rented homes with F and G ratings have been able to request improvements, such as insulation.  The landlord has been legally bound to bring the property up to at least an E rating (except where upfront costs were required).

Now properties with an Energy Performance Certificate rating of F or G are classified as ‘sub-standard’.  From April 2018 agents and landlords must not grant a lease on a sub-standard property.

From April 2020, landlords must not continue to let-out sub-standard properties.  Currently 330,000 buy to let properties stand to be affected across the UK.

If you are in doubt about the rating of your property, you should validate that you are rated ‘E’ or better.  Where the rating is F or G, remedial works must be specified, scheduled and completed over the coming year.