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.

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.

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 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 is the 3rd least affordable place to buy a home

House prices in the capital are now 14.5 times the earnings of an average Londoner, according to Hometrack, hitting the highest level on record. London was followed by Cambridge, where the average property is 14.3 times earnings, Oxford (12.6) and Bournemouth (10.1).

Last week’s budget confirmed Government plans to link Cambridge and Oxford by road and rail, with one million new homes planned along the arteries created. 

Oxford’s achieved prices for houses sold over the last 12 months is 6% up on the previous period according to Land Registry data, despite a 17% reduction in the number of completed transactions.  Whilst that is welcome news for current Oxford property owners, it points to continued supply constraint.  Oxford’s second-time buyers – young couples looking to trade up as they plan a family, can’t afford to move, meaning that first-time buyers face an acute shortage of available, affordable properties.  The new stamp duty incentive will not solve Oxford’s supply constraint.

New-build houses account for only 3% of available homes, with the majority being larger properties targeting already affluent Oxford house buyers.  Less than 1% of starter homes are new build.

Oxford City Council and Oxfordshire County Council must free-up development land and fight to secure above a fair share of the one million new homes planned.  The current target of 100,000 new homes is insufficient unless they are centred in Oxford or within easy commuting range.

Newspaper headlines have announced the demise of buy to let in Oxford, predicting a ‘great sell-off’ of private rented property.  To date, this has not materialised, and given the 6% increase in values, it should not be a great surprise that savvy landlords have held onto their assets.  However, private investors are not making new investments due to the stamp duty surcharge imposed on 2^nd homes. That should worry young people looking to live and work in Oxford.  There is already an under-supply of good quality rental properties in Oxford, and many more will be required given how long new build homes take to come available.

Increasingly private landlords are recognising the affordability benefit offered by villages outside Oxford.  Kidlington, Wolvercote and Marston continue to offer value for money, and rental yields above 4% in the first year of ownership.  Kidlington particularly has benefitted from the opening of Oxford Parkway station and regular bus routes to Oxford.  Kidlington is now recognised as a destination for couples and young families leaving London but wishing to retain easy commuting access.

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.

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.

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.

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!

Oxford Landlords – inform yourself about the new Buy to let mortgage lending guidelines

Oxford’s buy to let investors with multiple properties in Oxford alone could risk being turned down for future mortgages under the restricted guidelines being introduced in two weeks’ time.  Many Oxford landlords are unaware of the changes being introduced and may be well advised to consider remortgaging before the new rules come into force.

The new Prudential Regulation Authority (PRA) guidelines to mortgage lenders apply to those borrowers with four or more buy to let properties anywhere in the UK.  In future, Oxford’s ‘portfolio landlords’ - will have to show full financial information for every property in their portfolio, rather than simply providing top-line profits. 

What this means in practice is that, among other factors, lenders will look at the equity in each property, individual rental profits (‘yields’) and the geographical spread of a portfolio i.e. the extent to which the portfolio is exposed to just Oxford’s local property markets rather than Oxford and other markets with different market characteristics? The changes seem likely to make borrowing additional funds more time consuming, especially for Oxford landlords with larger portfolios just imagine having to assess forty properties individually when trying to refinance mortgage debt. It could also result in some of Oxford’s landlords being turned down for new finance even though their portfolio is unchanged from when they last raised finance. This seems likely to be especially the case where the landlord is heavily mortgaged or overly exposed to the Oxford market alone.

Because each lender has been allowed to interpret how the new requirements should change their lending processes, there is growing concern in Oxford’s buy to let community over the implementation of the new guidelines and the extent to which lenders are prepared and how consistently the new guidelines are introduced.

The changes, which aim to ensure Oxford borrowers are not over-exposed if economic conditions deteriorate, or if the local market stalls, build on ‘stress tests’ recently introduced by lenders who now demand rental income meets at least 125 per cent of mortgage costs. Lenders also already check that borrowers can afford to repay the loan regularly even if interest rates soar to 5.5 per cent.

Portfolio landlords in Oxford like their counter parts elsewhere are being targeted by the PRA because it has found that arrears rates increase as portfolio size increases. I expect the impact of these changes for Oxford’s portfolio landlords to mirror the impact of the 2015 Mortgage Market Review for owner-occupiers.  Mortgages will be tougher to secure particularly for landlords who do not prepare in advance and/or are solely exposed to Oxford property. Buy to let landlords whose portfolio is geographically concentrated risk being turned down for future finance, and should use the next two weeks to speak with their mortgage broker about refinancing, to understand the new approach, and possibly to secure new funds under the current lending assessment processes.

As mortgage interest rate relief is progressively phased out over the coming 3 to 4 years, and with the Bank of England providing clear direction that interest rates will most likely rise this calendar year, it is important that Oxford landlords do all they can as early as possible to reduce the cost of finance to off-set the increased costs impacting their business.

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 house prices remain subdued

House price growth in key British cities has fallen from 7.4% in July 2016 to 5.3% but some locations continue to see above average prices rises, the latest index shows.

Oxford prices achieved year on year (YOY) growth of just 1.2% in July, and are marginally down overall over the last quarter (-0.1%).

The biggest annual growth was in Birmingham with a rise of 8%, followed by Manchester up 7.1%, Nottingham up 6.0% and Southampton up 6.5%, according to the data from Hometrack.

In Aberdeen, the market has not recovered from a downturn due to falling oil prices and the city has seen negative growth for two years. Prices are 16% lower than they were in 2014 while year on year they are down 3% and month on month down 0.3%.

In London house price deflation has bottomed out with an increase in the annual rate of growth to 2.8% and month on month growth of 0.9%.  With Oxford increasingly mirroring the capital, albeit with a delay of 6 to 9 months, the slight recovery in London prices is to be welcomed, and may point to Oxford avoiding falling into negative territory YoY.

The index confirms that pressure on prices is greatest in the most expensive parts of London where demand has been weaker since the end of 2014. These inner London markets are registering small year on year price falls of up to 2%. The downward pricing pressure is less evident in the lowest value markets of London which have registered above average growth and price inflation of over 3%.

Looking ahead, the report says that there remains a clear divide between the prospects for house price growth in regional cities, where affordability levels are attractive, and the prospects for house price growth in London and other high value cities in southern England such as Oxford.

‘We expect house price growth in regional cities to be sustained at current levels for the rest of 2017. London is set for a sustained period of low nominal house price growth and lower sales volumes,’ it adds.

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.