Oxford – England’s number 1 for growth potential

Oxford has come first with Cambridge a close second as the city with the best growth potential in the England, according to a report published this week by Arcadis.  The report highlights Oxford as having substantial potential with only Edinburgh rating higher in the UK.

The report states that Oxford and Cambridge are set to be boosted by the Oxford – Milton Keynes – Cambridge corridor.

Arcadis scored cities in several areas including economic performance, branding, housing, quality of life, quality of place, people, growth and infrastructure. These measures were used to identify the attractiveness for future inward overseas investment for social and economic growth. Oxford achieved a total score of 56.1% with Cambridge on 55.8%, with only Edinburgh topping them within the UK with a score of 65.5%. The report looked at a total of 24 UK cities.

Particularly highlighted were collaboration and JV investments as key to fulfilling the potential, especially in housing and infrastructure – which is a key focus of the Oxford-Cambridge Corridor project. The report states that the corridor will improve investment potential by reducing congestion, making housing more affordable and enhancing connectivity. The corridor is expected to play an important part in enhancing future investment, particularly in the following key areas:

·       Housing – to reduce the ratio of average house prices to average earnings;

·       Road congestion – reducing the hours spent per year in traffic jams;

·       Enhanced airport connectivity – to improve journey times to and from key airports

The first two of these has been given top priority in the work of the Oxfordshire Growth Board (consisting of all six Oxfordshire local authorities). The £215 million Housing and Growth Deal between Oxfordshire and the government is expected to be signed off at the end of this month, and will support the opening up of new housing sites around the county and the development of a Local Industrial Strategy for Oxfordshire.

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.

Propertymark predict 2018 will be a year of change

This article was first published in Property Investor Today, and is republished in the Blog with our own comments added:

NAEA Propertymark and ARLA Propertymark have shared their forecasts for the rental and buying market in 2018, with rental prices set to rise in the 12 months ahead.

According to 59% of ARLA Propertymark letting agents, rent prices will increase next year, while 19% believe they will decrease. Some 62% predict the supply of rental stock will fall in 2018, while 53% think demand will rise. Meanwhile, seven in 10 letting agents expect private rented taxes to rise further in 2018.

Blog comment:  I am entirely aligned with these findings.  There should be no doubt about landlord tax costs rising given that Mortgage interest relief tapers-off further from April 2018.

“2017 was a big year for the lettings industry, and tenants felt the effects of this,” David Cox, chief executive of ARLA Propertymark, commented.

“Unfortunately, it looks like rising rent costs are going to continue into the New Year as agents need to be moving into a 0% fee business model by October, which will push rents up as the costs are passed through landlords and onto tenants.”

Blog comment: ARLA is advising its members that the tenant fee ban will be introduced from October 2018.  Whilst there is no firm date provided by Government, this is our current working assumption.  This will immediately impact the Oxford student lettings market for the 2019/20 academic year.

Cox believes the regulations making their way through Parliament next year will have a positive effect on the rental market, including the prospect of housing courts and longer-term tenancies.”

He said: “While these policies will be developed rather than implemented, they should start to affect the market as agents adapt their business in anticipation.”

Blog comment: I believe the new legislation will prove disruptive for at least 6 months as the market gets to grips with the ban on tenant fees.  Once a date for implementation of the ban is confirmed, tenants will seek to delay their decisions until as late as possible in the hope they can avoid paying a fee.  There is no clear market-wide consistent response to the fee ban emerging, suggesting that the market will adopt different approaches, causing uncertainty for tenants and landlords.

“Overall, the industry is going through a seismic change and the lettings market we know today will be radically altered over the next five years,” warns Cox. “This change will be painful for agents, but we firmly believe that the industry will come out of the other end stronger, more professional and with a robust reputation among consumers.”

Blog comment:  Any letting agent which is not actively planning for the ban now, is in danger of financial instability.  In my own agency we have been preparing now for well over 12 months.

By contrast, 43% of NAEA Propertymark’s estate agents predict that house prices will fall next year. The majority (44%) expect supply to remain the same in 2018, while 29% think it will decrease. Some 32% think demand will decrease in line with this, but almost half (46%) expect it to remain the same.

Blog comment: Prices in Oxford remained robust in 2017 rising around 6% despite transaction volumes falling around 17% YoY.  I expect Oxford prices to perform well relative the wider SE market and remain in positive territory.

Meanwhile, a third (34%) expect incidences of gazumping to decrease in the New Year, while the trend of renovating rather than moving is expected to continue as 60% think more homeowners will do this.  “However,” he continued, “looking ahead to next year, more than half of our members don’t think the first-time buyer tax relief will have a real impact on the number of sales being made to the group.

Hayward added: “Agents expect supply to remain the same but demand to grow which sounds like bad news, but if we can improve the process of buying a property, we’ll be making vast improvements to the sector which will ultimately make it easier and provide more certainty for first-time buyers.”

The trade body also has high hopes as well as predictions. “Our members want to see stamp duty relief rolled out nationally to all buyers, and hold out hope that housing stock will increase,” said Hayward.

“This will be a case of ‘wait and see’ – the Government has made many such promises in the past which we’ve never seen translated into reality.

Blog comment:  Predictions on the future property market always seem to be pessimistic, partly because that seems to sell more copy, and partly because there is so much Government intervention it is hard to predict the fall-out.  The fundamentals in Oxford are strong.  There is an under-supply of new build property, and under-supply of affordable starter homes, and an under-supply of private rented accommodation.  Under-supply can create stagnation particularly when 2nd time buyers can't afford to move, and 1st time buyers can't find or afford a starter home.  But, where demand stays strong, prices tend to hold-up well.  Despite far lower sales transactions in 2017, prices rose 6%.  Lon-term new supply of starter and small family homes is desperately needed to increase sales volumes and lubricate the market.

Oxford house prices matching National average growth rate

Hometrack has release its UK Home Price Index for August 2017, and on first reading it appears to include relatively positive news for Oxford home owners.  Nationally, the average rate of house price inflation is 3.8% which Oxford is matching exactly.  However, closer inspection shows that the National average is being dragged back by London which achieved just 1.9% year of year growth to August 2017.

Whilst Oxford is performing well in comparison to Cambridge (2.8%), Bristol (3.4%) and other major University cities such as Cardiff (3.2%), Sheffield (2.7%) and Liverpool (3.8%), overall Oxford home prices are rising more slowly than 10 other cities in the Hometrack 20 City Index.

Delving further it can be seen that cities like Oxford, that have enjoyed strong growth over recent years, and where average prices have risen strongly, are struggling relative to the best performing cities such as Manchester (7.3%), Birmingham (6.7%) and Edinburgh (6.6%).  Indeed, the 3 most expensive cities in the index London (£489,100), Cambridge (£434,500) and Oxford (£425,800) are each in the lower half of the table, with oxford out-performing both Cambridge and London.

So, is this good news or bad news for Oxford’s home owners?  Well it really depends on circumstance. 

With new build homes struggling to exceed 1% of the total transactions completed over the last 12 months, for first-time buyers, Hometrack’s statistics offer bad news.  Despite the total number of house purchase transactions being down over 20% compared to the previous 12-month period, there remains inflationary pressures, which is widening the affordability gap for first-time buyers.

For Oxford home-owners, the news is more positive.  Despite transaction volumes falling substantially, their homes continue to rise in value ahead of the general rate of inflation.  However, with the market as a whole being generally slower, those planning their next move may need to be patient to find a buyer and to find their ideal next property.

Careful research into Land Registry data for Oxford also shows that the price increments between Flats, terraced, semi-detached and detached homes are high.  Over the last 12 months’ flats have averaged £280,276, terraced houses are on average 36.7% higher (£383,104); semi-detached are just 7% higher than terraced (£410,615) but detached houses are a staggering 46.4% higher than semi-detached (£600,934).  This means that for many who own an Oxford property, it is difficult to ‘trade-up’ to larger properties.  And, the lack of new build means that for many they must either rent to live in Oxford, or live in more affordable places like Bicester, Didcot and Abingdon and commute into Oxford for work.

More renting than mortgaged households within eight years

A cultural shift in home ownership is happening before our eyes.

According to a NatWest economist, by 2025, the number of mortgaged households in the UK will be just under 6m, while the number of households in private rental accommodation will be a whisker more, at 6m.  Sebastian Burnside says the cross-over will happen in late 2024.

Burnside is reported by Property Industry Eye as saying : “We think it’s a fairly comfortable bet that by 2025 we will have more households renting privately than owning their homes with a mortgage, which is a big cultural shift for a country like the UK and something that’s being driven by those underlying demographics.”

There are already more people owning a home outright than people buying with a mortgage, and the number of outright home owners is still growing.  Since 2013, outright home ownership has been the biggest form of housing tenure in the UK. By 2024, about 9m households will own their homes outright. 

County at 'tipping point' as nearly 200,000 people predicted to live in Oxfordshire by 2030

The following article is a cut and paste from the Oxford Times and is written by Georgina Campbell.  I've taken the unusual decision to re-post the article here as I feel it raises a number of interesting factors that show how housing policy (or lack thereof) is and will continue to hamper the Oxford's and the Counties future wealth.  I feel that Georgina has captured and presented some of the fundamental issues that our Civic and County leaders must address to ensure that the City remains the attractive, multi-talented, multi-cultural and vibrant Cities in the UK. Housing policy is not just a matter of building more affordable homes (although that is a critical component), it is also about recognising demographic shifts and providing suitable housing, enabling family homes to be freed-up for growing families by providing older residents suitable and attractive down-sizing options.

The article reads:

OXFORDSHIRE’s growing and ageing population is at 'tipping point' with nearly 200,000 extra people predicted in the county by 2030, public health bosses warn. 

The county’s director of public health, Dr Jonathan McWilliam, said the way services are run needs to change to prevent a crisis in people’s access to health and social care. 

Predictions for the next 15 years show the number of people over the age of 65 will increase by 53 per cent and those over the age of 85 will increase by 96 per cent. 

And although the fact that people are living longer 'should be shouted from the rooftops', Dr McWilliam hopes his independent report will be the catalyst for change in the provision of services. 

He said: "The biggest challenge is the increase in the number of people in the county and the number of people that will be here in the years to come. 

"This issue has been with us for the last decade. 

"The problem is this creeps up on us, it happens in slow motion and we do not take notice until we reach this tipping point where older services need to be replaced with new ones." 

The tenth annual public health report predicts an additional 183,900 residents will be in the county by 2030. 

And the challenge of managing a growing population is made even harder by a raft of other problems, he warns. 

Crippling house prices are affecting recruitment in health and social care - a problem which needs to be addressed to cope with the growing demand. 

Dr McWilliam said: "It is becoming increasingly difficult to recruit the staff we need to fill nursing, caring and ancillary posts. 

"In the last few weeks I attended meetings where the hospital and social care services were spelling this out very clearly. 

"Some hospital wards are for example reported to be running with 25 per cent vacancies." 

Oxford is the least affordable city with house prices being 16.7 times higher than annual earnings, on a par with London, and bosses warn they might need to look beyond the county to towns like High Wycombe to find enough affordable for housing for the influx of extra workers. 

Dr McWilliam added: “Other options such as building hostels for workers are also being explored. 

"We have identified the problem, we have reached a tipping point and we have to work together to find a solution, even if we do not know exactly what that solution is yet." 

Some developments for key worker housing have been proposed, such as 83 homes at William Morris Close in Temple Cowley (see more on the development in page 4), but many more would be needed to cope with the extra demand. 

Dr McWilliam is also calling for more joined-up thinking in housing developments, stating that the focus needs to be on how people can live a healthier life in their community. 

He added: "The key message is: health is planning and planning is health. 

"Of course every development is different, some are large and some are small. 

"But there are some basic principals in terms of dementia-friendly streets, cycle and pedestrian lanes that can be carried through all new developments." 

In order to tackle the 'whole raft of issues' Dr McWilliam is calling for central government, organisations and residents themselves to come together and work towards an overhaul in the way services are provided. 

He added: "We have never been in this situation before, which is why we do not have all the solutions to hand right away. 

"But I think we have time for organisations to find out what they need to do, we are recognising and reacting to that tipping point.

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.