Young proferssionals are unable to buy their first home in Oxford – Are the Baby Boomers and Landlords to Blame?

Talk to some Oxford 20 something, for whom home ownership appears a vague dream, and they are vexatious towards the Baby Boomer generation and their pushover walk through life, their free university education, their eye watering property windfalls, their golden final salary pensions and their free bus passes.

If you bought a property in Oxford for £25,000 in first quarter of 1977, today it would be worth £549,429, an increase of 2097.7%.

But to blame the 60 and 70 year olds of Oxford for that seems a little unfair. The mature generations joined the property party in the 1970’s and 1980’s when they were allowed to take out huge mortgages, protected by the knowledge that inflation would corrode the real value of the mortgage, increase property prices, while boosting wage growth enhancing their ability to repay.

Unlike Government, neither do I blame the multitude of Oxford buy to let landlords, buying up their 10th or 11th property to add to their buy to let portfolio. They too, merely reacted to the peculiar historic inducements of the UK property market.

Surely someone is to blame?

Margaret Thatcher and Nigel Lawson are also good people to blame - selling off millions of council houses at knock-down values and delaying ending of the MIRAS tax relief in 1987. The Blair/Brown combo doubled stamp duty in 1997 and again in 2000, which, as a tax on property transactions, precluding a more equitable distribution of current housing stock. And, our current Government has had plenty of opportunity to change the stamp duty rules to incentivise those mature Oxford house movers to downsize, but have failed to act.

It’s easy to think the only reason that hundreds of first time buyers have been priced out of the Oxford housing market is because of private landlords. Yet, I believe they are undervalued.  With first time buyers struggling to save for a deposit, if it weren’t for those landlords buying up homes we would have a bigger housing crisis than we have today. Since the global financial crisis of 2008/9, local councils have cut services, and haven’t had enough money to build new homes.  Homes that were provided to Oxford instead by buy to let landlords helping to reduce the scale of the current crisis.

657 homes are being bought by buy to let landlords each year in the Oxford City Council area when otherwise they might have been available to other buyers.  But at a time when the current national average deposit is £51,800, most young people are simply unable to meet lenders’ demands. And, homes bought by local landlords are not standing empty, instead they equate to 4,596 of homes for local people, most of whom either see renting as a preferred option given the flexibility required by the early years of their professional lives, or accept that they cannot yet meet lender demands for deposits. 

Oxford Buy-to-Let Return / Yields 3% to 7.1% a year

The mind-set and tactics you employ to buy your first Oxford buy to let property needs to be different to the tactics and methodology of buying a home for yourself to live in. The main difference is when purchasing your own property, you may well pay a little more to get the home you (and your family) want. When buying for your own use, you will often buy at the top end of your budget.

With a buy to let property, your goal is a higher rental return – a higher price doesn’t always equate to higher monthly returns – in fact quite the opposite. Less expensive Oxford properties can bring in bigger monthly returns. Most landlords use the phrase ‘yield’ instead of monthly return. To calculate the gross yield on a buy to let property one basically takes the monthly rent, multiplies it by 12 to get the annual rent and then divides it by the value of the property.

If an Oxford buy to let landlord has the decision of two properties that command the same amount of monthly rent, the landlord can increase their rental yield by selecting the lower priced property.

To give you an idea of the sort of returns in Oxford...

Now of course these are averages but they provide a fair representation of the gross yields you can expect in the Oxford area.

With the total amount of buy to let mortgages amounting to £199,310,614,000 in the country, landlords need to be aware of the investment performance of their property, especially in this era of tax increases and tax relief reductions.

However, before everyone in Oxford starts selling their upmarket properties and buying cheap ones, yield isn’t the only factor to consider when deciding on which Oxford buy to let property to buy.  Void periods (i.e. the time when there isn’t a tenant in the property between tenancies) are an important factor and those properties at the cheaper end of the rental spectrum can suffer higher void periods.  Apartments can also have service charges and ground rents that aren’t accounted for in the gross yields. Landlords also make money if the value of the property goes up. In Oxford, because property is expensive, landlords should consider the total return on investment, considering both the net yield (the gross yield less other expenses e.g. service charges) and the increase in property values.

In Oxford, for example, over the last 20 years, the average price paid for the four different types of Oxford property have changed as follows:

·       Oxford Detached Properties have increased in value by 269.5%  

·       Oxford Semi-Detached Properties have increased in value by 284.2%

·       Oxford Terraced Properties have increased in value by 274.3% 

·       Oxford Apartments have increased in value by 261.8%

It is very much a balancing act of yield, capital growth and void periods when buying in Oxford. Every landlord’s investment strategy is unique to them. If you would like a fresh pair of eyes to look at your portfolio, be you a private landlord that doesn’t use a letting agent or a landlord that uses one of my competitors – then feel free to drop in and let’s have a chat. What have you got to lose? 30 minutes and my tea making skills are legendary!

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. 

The Oxford Property Market, The Beatles, Sweden and 50 year mortgages

50 years ago, in 1967, the first human heart transplant was performed by Dr Christian Barnard in South Africa. In the same year, Sweden switched from driving on the left-hand side to the right-hand side of the road. The average value of an Oxford property was £6,730, interest rates were at 5.5% and The Beatles released their Sgt Peppers album.  But what the hell has that to do with the Oxford property market today? Quite a lot actually - let me explain my friends!

I have been doing some research on the current attitude of Oxford first-time buyers.  First-time buyers are so important for both landlords and homeowners. If first-time buyers aren’t buying, they still need a roof over their heads, so they rent (good news for landlords). If they buy, demand for Oxford property goes up for starter homes and that enables other Oxford homeowners to move up the property ladder.

First-time buyers are the lifeblood of the property market. They are, however the most susceptible to interest rate rises and the affordability of mortgages. With that in mind, let us see what is happening to them…

The average value of an Oxford property is currently standing at £507,468 and UK interest rates at 0.25%. As each year goes by, it appears the age of the everlasting mortgage has started to emerge, prompted by these first-time buyers, eager to get a foot on the housing ladder. I was reading a report a few days ago where some mortgage companies confessed that the battle to gain big returns from the property market has led to mortgages that will take considerably longer than the customary 25 years to pay off.

Over the last few years, it has been commonplace for first-time buyer mortgages to be 30 and 35 years in length as the ‘Bank of Mum and Dad’ have been helping with the deposit. Now, some high street banks are offering mortgage terms of 40 years. This means first-time buyers could be paying until their mid-60’s.  So, a 50-year mortgage does not seem as far-fetched now as it would have been back in the 1970’s. After all life expectancy for a male then was exactly 69 years and today its 79 years and 5 months!

Over the last ten years, Oxford property prices have continued to rise more than wages, therefore, first-time buyers are looking for bigger loans. If this development continues, the only way repayments can remain reasonable is by increasing the term of the loan.

However, some commentators have said they are worried the mortgage companies are lending money over such a long term, because they threaten leaving some first-time buyers with a generation of debt if the house price bubble bursts.  Interestingly, when I looked at what had happened to average property values in Oxford over the last 50 years, there have been bubbles. First-time buyers should take heart, since as a county we have always recovered from it a few years later.

What if interest rates rise? Well looking at historic UK interest rates, the current rate of 0.25% is at a 300-year low. Mortgages will never be cheaper. I would however, seriously consider fixing the rate to cushion any future potential interest rate rises (since they can only go in one direction when they do change). If Oxford first-time buyers see buying a home as a long-term decision, based on the last 50 years, they should feel very confident that their asset will increase in value over the term of their loan!

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 house price inflation loses momentum

House price inflation in Oxford, like other big southern cities in the UK, has seen growth slip from double to single digits. London has reached its lowest level for five years,

The latest Hometrack UK Cities House Price Index revealed growth in London has dropped to 3.5%, a slowdown from the 13% registered in April 2016, giving an average value of £489,400.
Bristol, Cambridge and Oxford, previously top performers, have also seen price inflation slip into single figures, while in contrast the Midlands and northern England are topping the charts.

The average house price in Oxford over the last 12 months is now £407,248.  There have been 3,148 sales transactions over the same period which is 15% down on the same period 12 months earlier.

In comparison, Manchester recorded price growth of 8.4% during April where average prices were £155,000, followed by growth of 7.7% in both Leicester and Birmingham where values are at £164,600 and £152,100 respectively.

Across the top 20 UK cities, price growth has slowed in the past 12 months from 8.7% to 5.3%, with average prices at £247,400.