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 Property Market and Hammond’s Budget Promise to Build 300,000 more homes

I miss the good old days of George Osborne as Chancellor, with his hardhat and hi-vis jacket. He must have visited every new home building site in the UK with his trademark attire! For the last few years, the nearest Philip Hammond got to donning a ‘Bob the Builder’ outfit was at his grandchild’s birthday party. However, with what appears to be a change in focus by the Tories, they appear to have fallen in love with house building again with the Chancellor’s promise to create 300,000 new households in a year.

Nationally, the number of new homes created has topped 217,344 over the last year, the highest since the financial crash of 2007/8. Looking closer to home: in total there were 320 ‘net additional dwellings’ in the last 12 months in the Oxford City Council area, a respectable increase of 113% on the 2010 figure!  Evidence of a prolonged period of under-investment.

The figures show that 66% of this additional housing was new build properties. In total, there were 211 new dwellings built over the last year in Oxford. In addition, there were 43 additional dwellings created from converting commercial or office buildings into residential property and a further 81 dwellings were added as a result of converting houses into flats.

While these all added to the total housing stock in the Oxford area, there were 15 demolitions to take into account.

I was encouraged to see some of the new households in the Oxford area had come from a change of use. The planning laws were changed a few years back so that, in certain circumstances, owners of properties didn’t need planning permission to change office space in to residential use.

With the scarcity of building land available locally (or the builders being very slow to build on what they have, for fear of flooding the market), it was pleasing to see the number of developers that had redeveloped vacant office space into residential homes in the local council area. Converting offices and shops to residential use will be vital in helping to solve the Oxford housing crisis especially, as you can see on the graph, that the level of building has hardly been spectacular over the last seven years!

Now we have had the autumn budget, Theresa May and Philip Hammond have set out their stall with housing as their key focus, including more funding for the supply side and an injection of urgency into the planning system.

The biggest question is, just where are the Government going to build all these new houses? Whilst the apparent new focus on the housing market by the Government is good news for all homeowners and buy to let landlords, in the short term, demand still outstrips supply for owner-occupied and private rented homes and that will mean continued upward pressures on prices for buyers and on rents for tenants.

Top slice mortgages may help Oxford investors

Which? – the consumer organisation - says a handful of buy to let mortgage lenders have found a way of helping so-called ‘portfolio landlords’ to borrow more than they might have expected under tough new regulations.

Last month the Prudential Regulation Authority tightened the criteria which individual lenders had to use when handling applications from portfolio landlords - that is, those with four or more buy to let properties. 

But now the Which? Reports that “a handful” of lenders offering ‘top slicing’ deals, which allow landlords with low rental yields to make up their shortfall through other income. 

“Top slicing takes a landlord’s personal income, such as their salary or pension income, into consideration when assessing their affordability, rather than just looking at the profitability of their property portfolio. Top slicing is good news for landlords buying higher value properties which might have lower rental yields, as it allows them to use external personal income to bridge any shortfall” says a statement from Which? 

With Oxford prices rising again over the last 12 months by around 6%, and average Oxford homes costing £414,817, Oxford offers lower rental yields over the initial 3 to 5 years following purchase.  As a result, ‘Top slicing’ products would appear highly relevant for landlords aiming to increase their investment in Oxford property.

The consumer group says currently the lenders who undertake this are Aldermore, Barclays, Bluestone, Clydesdale Bank, Coventry, Mansfield, Metro Bank, NatWest, Vida and Virgin Money.

However, because of the restrictions imposed on most lenders by the new PRA criteria, some 14 companies have pulled out of the portfolio landlord market completely, says Which? This includes Santander, the TSB and the Post Office.

What is the next big trend in Oxford rentals

Over the last few weeks I’ve been asked on three separate occasions by Oxford buy to let landlords what trends they should be aware of when considering their next buy to let investment in the city.

One trend that is certainly emerging in Oxford is rising demand for larger properties, by couples with young or growing families.  Typically, these couples are already renting, but out-growing their one or two-bedroom property, and targeting more space to grow into.  They are members of a growing group of young parents who have always rented their homes, and who either prefer to continue to rent, or who remain priced-out of the Oxford market.

Looking at Oxford’s housing mix, shows that 3 and 4-bedroom properties account for just over 50% of all Oxford properties, suggesting that availability shouldn’t be a problem.

However, this is a highly competitive sector of the market.  The most active purchasers of Oxford 3-bedroom properties are in their late-20s or early to mid-30s, they may already own their own home or this might be their first purchase, they are parents with growing families or couples planning to start a family soon. Many are seeking a perfect balance of access to decent primary schools, commutability, access to an open space and general liveability by which I mean access to supermarkets, pubs and restaurants. For landlords looking to buy 3 and 4-bed Oxford properties, they face stiff competition from these 20/30 something families, making the three-bedroom Oxford home massively in demand, often attracting spirited offers and selling within weeks of listing.

This mix of homebuyers and landlords is creating a pressure point in the Oxford property market, which reduces the availability of 3 and 4-bedroom properties for young families with the same nees as those described above, but who either have to rent or prefer to rent rather than buy.  The competition for the purchase of these properties is maintaining pressure on prices, which in turn applies pressure to rental yields making some buy to let landlords think twice about investing in this in-demand sector of the market.  I firmly believe that demand will outstrip supply over the coming years and that as a result rental yields will improve progressively, making early investment in this sector attractive.  I also believe that this sector will be less impacted by uncertainty resulting from domestic politics and Brexit, given that demand will be dominated by UK nationals and long-term residents.

Next week I will examine the costs associated with buying an additional bedroom in the Oxford market.  For renters, however, the challenge is one of availability. 

If you are an Oxford landlord, please do call me and I will show you areas with decent returns where you aren’t in so much competition with young Oxford family homebuyers to exploit this future growth market.

What makes a place a good bet for Buy to Let, and how does Oxford stack-up?

Since the millennium, the proportion of households renting privately has grown from 10% to 19%.  But which towns and cities should investors look to for high levels of rental demand and future rental growth? Which demographic and economic indicators are best at predicting performance? 

The Dataloft PRS Squared Index monitors key indicators for 50 towns and cities across the UK to help predict performance and identifies four key indicators:

1.     A strong local economy is best judged through local earnings and job growth. The airport towns of Luton and Crawley (for Gatwick) have seen the strongest earnings growth over the last few years.  In Oxford, Kidlington is performing well reflecting the investment in Oxford Parkway station.

2.     Nurturing new businesses can be judged in multiple ways, for example Cambridge, Aberdeen and Aldershot are top of the league for new patents per head of the population. Oxford ranks fifth in UK for gross value-add (GVA) with its top 100 employers accounting for 60% of employment.

3.     Demographic growth data tells us a lot about the scale and strength of the rental market. Is the population growing? How about the number of young professionals, the Holy Grail for rental demand?  University towns do well on this measure, particularly those with strong research facilities that hold onto students well beyond graduation. Cambridge and Oxford rank highest for locations with a young demographic (aged 20 to 44 years), with 32% of Oxford’s population being aged between 18 and 39 yrs.

4.     Affordability is another crunch factor for rental demand. In places where house prices are particularly high relative to earnings, more people will stay longer in the rental market. London is our nation’s primary example of overstretched affordability, but Oxford rivals London, taking over 50% of household gross earnings to meet mortgage payments for the average house price.  At present some 30% of the population live in rented accommodation

Dataloft has devised a 4-part framework for assessing and weighting the complex web of factors that affect rental demand. Oxford performs strongly vs each criteria, confirming Oxford’s long-term attractiveness for landlord investment.  However, the continued strong property price growth and some reduced growth in rents means that rental yields can take time to build, meaning that savvy landlords carefully plan their investments prior to targeting investments to achieve their financial objectives.