The daily hysterical headline about house prices is misleading

“Oxford house prices are stagnating”  “Oxford homes least affordable in the UK”  “The house price bubble is set to burst”  “Housing Armageddon”.  Just a flavour of the typical narrative of headlines in the printed and digital media daily.  Yes, it seems we Brits are completely obsessed with property, especially when the news is dire!

Given that I am in the business of writing about Oxford’s property market, I thought I’d do a little research to establish some facts and to share them with you.

Hometrack has recently updated its UK Cities house price index with data to December 2017, so it is a good time to take a look and consider the facts.

In general UK citizens feel that they understand property it feels as if it is in our national DNA.  And yet, so many people seem to react to short-term trends, changing their investment decisions because of the headlines they read.

According to Hometrack, an average Oxford property is now worth £425,600, at a time when an average London home is worth £488,300.  So, an average Oxford property is now worth 87% of an average London property.  Only Cambridge gets close to Oxford and London with an average house value of £404,300.  But London prices have been falling so surely Oxford will suffer a similar fate?  Well the truth is no-one knows! Towards the end of last year Oxford properties did dip slightly according to Hometrack, but across the 12 months to December 2017 Land Registry data shows Oxford properties sold for values 6% up on the previous 12 months.  It is also apparent that house prices have performed better than predicted during January.

We are often told that investment in property should be long-term, but does the long-term data support that assertion?  Below is an analysis that shows Oxford house prices (in Green) vs UK house prices (in Brown).

Oxford vs UK House Prices

From the graphic it can be seen that the UK house price index had a positive consistent growth curve over the period from 1998, to 2008 after which it had a steep dip during 2009/10 with a progressive recovery to the end of 2017 as which point prices had recovered to their 2007 highs.  In comparison, since 1998 Oxford property has consistently out-performed the UK average, following a steeper growth curve, experiencing a more dramatic short-term fall during 2008/9, since when, it’s recovery has been significantly steeper recovering 2009/10 losses during 2012/13.

Oxford vs London House Prices

So how has Oxford done compared to London?  Well the analysis above shows how closely Oxford (green) typically tracks the London market (Brown).  With a gap in average values opening since 2013 as London out-performed the wider UK market because wage growth recovered more strongly and foreign investment drove the market forward.

And, let’s not forget the rivalry with Cambridge.  How does Oxford compare with Cambridge?  The analysis below is also notable for the close tracking of Oxford (dark green) and Cambridge property (teal) prices, demonstrating that both Cities benefit from their world-renowned Universities, their proximity to London and their long-term investment in the knowledge-based services sector.

Oxford vs Cambridge House Prices

What these analyses really show is that property is a reliable long-term investment, and that property owners should not be blown off course by short-term fluctuations and alarming headlines.  Even a multi-generational event like the credit crunch, which had a profound effect on property for 12 to 24 months, is now a matter of history with the long-term trend of growth having been restored.

6,564,678 People use Oxford Train Station a year - How does that affect the Oxford Property Market?

It might surprise you that it isn’t always the nicest most picturesque villages around Oxford or the most desirable Oxford streets where properties sell or let the quickest. Quite often, it’s the ones that offer the best transport links. There is a reason why one of the most popular property programmes on television is called Location, Location, Location!

As an agent in Oxford, I am frequently confronted with queries about the Oxford property market, and most days I am asked, “What is the best part of Oxford to live in these days?”,.  Now, the answer can be different for each person – a lot depends on individual factors e.g. the age of their family, their age, schooling requirements and interests etc. Nonetheless, one of the principal necessities for most tenants and buyers is ease of access to transport links, including public transport – of which the railways are very important.

Official figures recently released show that, in total, 9,017 people jump on a train each and every day from Oxford Train station. Of those, 2,811 are season ticket holders. That’s a lot of money being spent when a season ticket, standard class, to London is £5,724 a year.

The bottom line is that property values in central Oxford would be much lower, by at least 3% to 4%, if it wasn’t for the proximity of the railway station and the people it allows access north and south of the City

Rail is becoming increasingly important, as the costs associated with car travel continue to rise and as the roads are becoming more and more congested. This has resulted in a huge surge in demand for rail travel.  

Overall usage of the station at Oxford has increased over the last 20 years. In 1997, a total of 3,064,352 people went through the barriers or connected with another train at the station in that 12-month period. However, in 2016, that figure had risen to 6,564,678 people using the station (that’s 18,035 people a day).  Hence the huge investment in capacity at Oxford parkway station where parallel investment in bus routes to/from Oxford has driven house prices in and around Kidlington, meaning that house price growth continues to track above the average for Oxford.

A property’s location relative to the train station has an important effect on its value and saleability in Oxford. It is also significant for tenants – allowing car-free living to be realistic in a City that wishes to limit car usage.

One of the first things house buyers and tenants do when surfing the web for somewhere to live is find out the proximity of a property to the train station. That is why Rightmove displays the distance to the railway station alongside each and every property on their website – they know it is in the top 5 criteria applied by buyers and tenants alike.  To illustrate this, recently a couple came to me looking for a property 5 minutes’ walk from Oxford station and 5 minutes’ walk to the central shops, restaurants and bars.  They wanted 2 bedrooms, one bathroom and wanted to keep the monthly rent to around £1,000.  In the event, they achieved their perfect location, but had to raise their budget by 20%, reflecting the premium that proximity to the stations carries.  They are now living just off St Thomas Street, just a few hundred yards from the Central station.

Don’t miss the opportunity to save money

The last meeting of the Bank of England’s (BoE) Monetary Policy Committee had their first split-vote for several months when agreeing that interest rates should remain at 0.25%.  It is clear that the pressure is growing to revise interest rates back up to 0.5%.

Since their meeting, UK inflation figures have been released indicating that over the last month inflation has risen above the BoE target of 2% registering 2.3%.  This is the first time the target has been breached since November 2013.

Why is this important to Oxford’s landlords?  Because, once the BoE base rate rises from 0.25% mortgage rates will follow immediately.  Landlords have a closing window of opportunity to lock-in historically low interest rates and save themselves money.

Why is now a good time to minimise costs?  Because, the new rules relating to the tax treatment of mortgage interest rate payments are to be phased-in from 6 April 2017.  These changes, which will bite progressively over the coming 4 years, will increase landlord costs materially.  Taking time now to remortgage could off-set the increased cost in tax, helping to insulate landlords from higher tax charges. 

Remortaging can also be a great way for landlords to release capital from their properties for further investment and/or to fund maintenance and renovation works.

Many landlords know they should look to optimise their mortgage arrangements, but either can't be bothered, or feel a sense of loyalty to their long-term lender.  Now is no time for apathy or misplaced loyalty.  Your costs are going to rise and you need to mitigate the losses.

As a rule I try not to use this blog to promote my own lettings business, but on this occasion, I will make an exception, as I believe we are well placed to help readers to investigate this opportunity quickly and conveniently. 

Martin & Co, Oxford have partnered with L&C Mortgages, the UK's largest fee-free mortgage broker. L&C has a panel of 88 mortgage lenders coving private, buy to let and corporate mortgages.  You will be able to get expert advice at the end of a phone when it suits you. Their expert advisers are on hand 7 days a week, and L&C will manage a full search of the mortgage market so you don’t have to. Over 1 million people have gone to L&C for fee free expert mortgage advice, so we believe that you can trust them to help you, too.

Either drop me an email on info@OxfordPropertyBlog.co.uk to request a call from L&C, or call L&C directly on 0800 923 2045 quoting Martin & Co, Oxford.

How much would it cost to buy all the properties in Oxford?

This fascinating question was posed by the 11-year-old son of one of my landlords when they both popped into my offices before the Christmas break.  I thought to myself, that over the Christmas break, I would sit down and try calculate what the total value of all the properties in Oxford are worth.  And just for fun, work out how much they have gone up in value since his son was born back in the autumn of 2005.

In the last 11 years, since the autumn of 2005, the total value of Oxford property has increased by 98% or £14.29 billion to a total of £28.88 billion. Interesting, when you consider the FTSE100 has only risen by 30.78% and inflation (i.e. the UK Retail Price Index) rose by 37% during the same 11 years.

When I delved deeper into the numbers, the average price currently being paid by Oxford households stands at £526,335.  But I wasn’t going to stop there, so I split the property market down into individual property types in Oxford; the average numbers come out like this.

Oxford Property Market
Average Value of a Detached Property	Average Value of a Semi-Detached Property	Average Value of a Terraced/Town House Property	Average Value of an Apartment
£862,650	£592,037	£482,151	£280,733

When I multiplied the total number of each type of property by the average value. Even though detached houses are so expensive, when you compare them with the much cheaper terraced/town houses and semi-detached houses, you can quite clearly see detached properties are no match in terms of total pound note value of the terraced/town houses and semi-detached houses.

Total Value of all the Oxford Detached Properties	Total Value of all the Oxford Semi-Detached Properties	Total Value of all the Oxford Terraced/Town House Properties	Total Value of all the Oxford Apartments
£5,652,945,450	£10,658,442,111	£7,669,093,806	£4,897,948,651

So, what does this all mean for Oxford?  Well, as we enter the unchartered waters of 2017 and beyond, even though property values are already declining in certain parts of the previously over cooked Central London property market, the outlook in Oxford remains relatively good, as over the last five years, the local property market was a lot more sensible than central London’s.

I predict that Oxford house values will remain resilient for several reasons: firstly, demand for rental property remains strong with continued immigration and population growth; secondly, with 0.25 per cent interest rates, borrowing has never been so cheap; and, thirdly, the simple lack of new house building in Oxford which is not keeping up with current demand, let alone eating into years and years of under investment – means only one thing –Oxford will ride out the storm.

In the coming weeks, I will look in greater detail at my thoughts for the 2017 Oxford Property Market.

Oxford Property Values increase by 2.88% ... good or bad news?

Even the Brexit vote has not hindered Oxford’s steady rise in property values. Last month alone Oxford property values went up 2.88%, leaving them 6.79% higher than a year ago.

So why, given Brexit, the coalition of the 2010-15, a double-dip recession and post credit crunch fallout – has the Oxford property market remained so strong, still 20.1% higher than 20 months ago?

The Oxford housing market is built on the foundations of basic economic rules that any GCSE Economics student should understand. However, at a time when we seem eager to uncouple ourselves from all manner of proven facts, why is it that Oxford’s property seems to be in a ‘post-fact bubble’?

Even the wary Royal Institute of Chartered Surveyors (RICS) said most of its Chartered Surveyors anticipated house prices to increase in the coming six months, which seems contradictory given economic cautions from Mr Hammond, HM Treasury and The Bank of England. Given that inflation will rise to between 2% & 3% in 2017 because of Sterling’s devaluation, and uncertainty remains about how Brexit will impact the wider economy, how can RICS and most of my landlords be so confident about the value of their homes?

Nationally the starting point is a strong base of low unemployment, low inflation and preposterously low interest rates, while in Oxford, the local economy continues to perform well. Confidence also plays a part. But the fact is, there is a strong long-term relationship between property values, wages and unemployment. For example, looking at the graph below, you can quite clearly see the ratio of property values to earnings is nowhere near as high as it reached in 2008 and currently is in the middle of the range for the last 30 years. As a country, we are in a good place.  Whilst Oxford remains one of England’s least affordable property markets, demand for homes – rented and owner occupied continues to far out-strip supply, and until the supply increases via new house building and via new private rental supply, the market will continue to be buoyant.

By April 2017, Article 50 will be invoked. This will bring further doomsday press commentary, polarised political opinion and short term crises of confidence. With both purchasers and vendors predisposed by the 24-hour news cycle, which let’s face it, gets more haphazard by the day, it is likely to prove a challenging couple of years … and yes, Oxford property values might rise less reliably during 2017, but based on what we know of the UK plc now, the UK and Oxford property values are not projected to move that much over 2017 or 2018.  Going into the next two years, we are in much better financial shape as a country compared to 2008, and since 2008 Oxford house prices have risen reliably – last year they were up 6% again and up 30% since 2013.

Confidence will continue to be the key player in the Oxford housing market for a while longer – despite being pro-remain, Oxford and its home owners need to look for the positives, stay confident and continue to invest in a solid long-term asset.

Is the government about to introduce stricter affordability tests for buy to let borrowing by Oxford’s landlords?

Regular readers will know that I believe that the recent and planned increase in taxes on buy to let transactions have the potential to undermine the achievement of 6,800 additional rental properties needed in Oxford by 2025 (the stamp duty surcharge since April 2016 and the forthcoming restrictions on interest rate relief).

Today’s headlines suggest that the forthcoming autumn statement will grant new powers to the Bank of England to mandate similar stringent controls on buy to let lending to ensure mortgages are affordable in the event of interest rates rising.  This stress-testing has already been applied for owner-occupiers, but does it have the potential to exclude middle-class investors from the Oxford buy to let market in the future?

Under the plans, affordability checks will be introduced with borrowers having to prove they can make a profit of 25% from rental payments, even if interest rates rise.  For example, an Oxford investor with a £200,000 interest-only mortgage borrowing at a rate of 1.79% today would currently have monthly mortgage payments of £299.  However, should interest rates rise to 5.5% the mortgage payments will rise to £917 meaning that the borrower would need to charge rent of at least £1,146 per month to be approved for a mortgage in the future (probably from April 2017).

So what difference will this make to an Oxford landlord buying a new ‘average’ property as a buy to let?  As our readers know returns on Oxford property come from primarily two sources – rental yield and strong capital appreciation (i.e. properties are increasing in value strongly year on year).  However, the proposed stress test will only take account of rental yield, which typically builds over-time, reflecting the fact that Oxford property prices are high.  For an average property the landlord will buy at around £385,000.  Assuming he/she puts down a deposit of 30% and has a loan to value (LTV) of 70% he/she will borrow £269,500.  Today the mortgage repayments will be £396.  Under the new stress-test at 5.5% they would be £1,235 and require a rent of £1,544 per calendar month.  That is around £170 pcm above the current average rent achievable.  To match the new affordability criteria the landlord would need a further £28,875 deposit (or 37.5% of the purchase price).

For many professional landlords, their established portfolios providing a strong asset base, meaning these changes will make little difference.  But for local people wanting to invest their savings in property to achieve a decent return, it will make the entry cost that much higher, and for some may prove unaffordable.

Increasingly, I am being asked by landlords to help them plan their investments, targeting purchases to optimise yield or capital growth.  I believe the Government focus on buy to let makes advanced careful investment planning more important than ever.  For the Government to be undermining buy to let returns by removing mortgage interest relief and then to add on-top a further affordability test seems unfair, but with careful planning Oxford still offers great return on investment.

House Prices in Oxford rise by more than 18% in the last 18 months

Over the last six weeks, property values in the Oxford City Council area rose by 6.2%, to leave annual price growth also at 6.2%. These rises compare well to the national figures where property prices across the UK saw an uplift of 0.42%, meaning the annual property values across the Country are 8.3% higher.

Looking at the figures for the last 18 months shows Oxford house prices are 18.1% higher, compared to the national average figure of 13.6% higher.  Over the last 18 months, in the Oxford City Council area, the best performing type of property was the semi, which outperformed the area average by 0.78% whilst the worst performing type was the apartment, which under-performed the area average by 1.42%.

That difference doesn’t sound that much, but remember two things, this is only over eighteen months and the ‘spread’ of 2.2% (the difference between the semi at +0.78% and apartments at -1.42%) converts into a few thousand pounds disparity, when you consider the average price paid for a semi-detached property in Oxford itself over the last 12 months was £480,000 and the average price paid for an Oxford apartment was £310,000 over the same time frame.

So how has each property types performed? Over the last 18 months in Oxford:

·       Overall Average:          +18.1%

·       Detached:                      +18.1%

·       Semi Detached:            +19.0%

·       Terraced:                       +18.6%

·       Apartments:                  +16.4%

When I looked at the month-by-month figures for the area, you can quite clearly see there is a slight tempering of the Oxford property market over these last few months. I have mentioned in previous articles that the number of properties on the market in Oxford has increased this summer, something that hasn’t happened since 2008. Greater choice for buyers usually means that top prices won’t be achieved on every Oxford property. You see, some of that growth in Oxford property values throughout early 2016 may have come about because of a surge in house purchase activity, an indirect result of the increase in stamp duty on second homes from April, thus providing a temporary boost to prices.

Overall, I believe that sellers need to pull out the stops to ‘dress’ their house for sale, to ensure that it is presented as strongly as possible in a more competitive market.  To help I recently published an eBook ‘The Ultimate Guide To Sell Your Home – How to sell quicker for more in Oxford. 

Has the supply of Oxford rental properties peaked?

In Oxford just 46.7% of people own their own home vs. an English average of 63%.  28.2% rent from private landlords vs. an English average of 17%.  To put that into real numbers, Oxford has roughly 15,600 rented properties and around 37,500 tenants.  But, the level of home ownership continues to decline while the demand for rental properties continues to grow, because Oxford continues to be one of the country’s least affordable places to own a home.

Nationwide, the Royal Institute of Chartered Surveyors (RICS) forecast that there will be 1.8m households requiring private rented homes by 2025.

In September the Association of Residential Lettings Agents (ARLA) report that average available rental properties per branch to have risen to 193 from 183 in August, that is the highest level since April 2015.  In parallel the average number of prospective tenants rose to 40 per branch, up from 37 in August.

At current rates of growth, Oxford will require over 23,000 homes for people wanting to live in a rented property by 2025 or over 7,000 more than it requires today.  That’s around 17,300 additional people living and working in Oxford requiring rented accommodation.

These facts demonstrate the real risk behind the Government’s strategy of taxing landlords, risking that they will remove their properties form the private rented sector in favour of alternative uses – either short-term holiday lettings or releasing them for purchase by people who no longer rely on the private rented sector to live in Oxford.  Either way, the measures seem set to worsen an already acute shortage of rental properties.

Is this over-dramatic I hear you ask?  Well RICS doesn’t think so, they have called on Government to reverse many of the tax changes because of their likely impact.  And, when they are listed out, it is hard to draw any other conclusion:

·       Removal of 10% wear and tear allowance on furnished lettings;

·       Addition of 3% stamp duty on purchases over £40,000;

·       Removal of higher rate tax relief on mortgage interest payments staged over 3yrs from April 2017;

·       Capital gains tax payable within 30 days of a sale from April 2019.

From a Government that claims to be pro-entrepreneur and pro-investment, this is an unprecedented attack on a sector, which appears to risk unwanted consquences further down the line.

Oxford leads the way on HMO licencing

The Government is launching a new wave of measures to clamp down further on investors and landlords.  The main measure is a minimum space requirement.  Under the plans, which will apply in England, he minimum room size in Houses in Multiple Occupation (HMOs).  The minimum room size in HMO and some other shared homes with be 6.52 square metres (approximately 70 square feet)  The size being applied for each individual or couple living in the property, meaning landlords will not be able to squeeze in bunk beds in the smallest room.

The new measures will also include provision for mandatory HMO-style licencing for all shared homes with five or more people from two or more households.

Oxford City Council is ahead of the Government on this, with compulsory licencing for HMO’s in Oxford having been in place for a while now.  In my article to be published this week in the Guardian and Oxford Paper newspapers and on The Oxford Property Blog, I identify growing demand for HMO property in Oxford, from young professionals as well as from Students.  The licencing in Oxford seeks to manage the number of HMOs in any post code sector as well as to raise standards of safety and quality of provision.

How can 13,862 Oxford savers protect themselves from low interest rates?

The financial correspondents of many National newspapers are speculating that interest rates will stay low well into the early 2020’s.  The yield on 10-year Government bonds is currently around 0.61 per cent indicating that the banks, pension funds and institutional investors believe that the Bank of England’s base rate will on average be below 0.61% over the next ten years (i.e. the rate at which they are buying the 10 year bonds)

For those who have savings (with many depending on them to supplement their pensions) are looking for ways to improve their returns, and protect their capital, investing their savings in property is an attractive option. A simple search of the internet suggests that the best savings rate available is a 5-year fixed rate at 2.5% a year. A £300,000 nest egg would earn you £7,500 a year and even then only if the capital was left undisturbed. However, Oxford property prices and buy to let yields combine to make property investment in Oxford an appealing alternative investment. The Average Yield (the investment return) over the last five years for Oxford buy to let property has been just over 5% per annum and average property values in over the same period have risen by 28.6%.

Using these averages, the saver with £300,000 to invest in Oxford property, would have capital appreciation of £85,800 over 5 years and receive an average gross rental income of £15,900 per annum.  But investing in property seems a daunting prospect for many people, who may worry that they don’t really have the expertise to choose the right property, and don’t have the capability to manage the process of finding tenants, managing the maintenance and collecting rent.  Then there’s the stamp duty to pay on the house purchase (£9,000 on a purchase of £300,000 as a buy to let), and the need to submit extra detail on a tax return (perhaps £750 per annum for an accountant).  For property owners who don’t want to manage the property themselves, a letting agent will want up to 12% of the rental returns per annum to undertake the management. And, of course there is maintenance of the property to protect the asset value at say 7.5% of the gross rent.   Assuming the investor sells the property at the end of Year 5 there would also be estate agency fees for the sale. But even with these complications, the net returns available enormous compared to the best 5-year savings rate available.

The total net return on investment (i.e. after all of the costs have been taken into account) is £132,600.  When compared to the best 5-year savings rate I could find which would provide a net return of just under £40,000.  That a return that is over 3 times what is likely to be achieved by saving money in a bank or building society account. 

As with any investment there are risks as well as benefits to buy to let investment. For example, investing in rental property means locking up capital in an asset that may fall or stagnate in value. There could be periods where the property stands empty waiting for new tenants to be found (called a VOID in the property industry).  But with advice from the right property agent, and with a willingness to take a medium to long-term view, most of the risks can be off-set.  And, with interest ratss so low, and set to continue to be low over the coming 5 years, the return from the right property investment more than off-set the risks involved.

Oxford new home building rises but is still below National average

Even with Brexit and the fact immigration numbers may now reduce over the coming years, there remains a severe shortage of new housing being built in the Oxford area (and across the UK as a whole).  Even if there are short term confidence trembles fueled by journalists, politicians and others hungry for bad news, the fast growing population of Oxford creates high demand for property creating an imbalance of supply and demand.  The recent Bank of England decision to lower interest rates over the coming 12 to 24 months will only add fuel to the fire.

When the Government was elected in 2015, David Cameron vowed to build 1,000,000 new homes by 2020.  If we as a Country manage to hit those levels, most academics agree that the UK Housing market would re-balance itself as the increased supply of property would give a chance for the younger generation to buy their own home rather than rent.  However, the most recent building figures show that in the first three months of 2016 building starts were down.  Nationally, there were 35,530 house building starts in the first quarter, a long way off the 50,000 a quarter that was targeted.

New building in the Oxford City Council area has grown.  In 2014/15, for every one thousand existing households, an additional 0.72 homes were built, for 2015/16, that figure is 2.49 homes built per thousand existing households (an increase of 246%).  However Nationally, to meet that 1,000,000 new homes target, Oxford needs to be at 7.12 new homes per thousand.

To put those numbers into real chimney pots, over the last 12 months, in the Oxford City Council area,  140 new homes have been built by Private Builders, but none have been built by Housing Association, and none have been built by the Local Authority.

This dismal picture is down to the fact that not enough is being done to fix the broken Oxford housing market.  We are still only seeing 140 new homes being built when we need 400 a year to stand still!

In my opinion, Messer’s Cameron and Osborne focused their attention too much on the demand side of the housing equation, using the Help to Buy scheme and low deposit mortgages to convert the ‘Generation Rent’ into ‘Generation Buy’.  It is now vital that the supply-side is addressed, and I would recommend the new Housing Minster, Gavin Barwell grabs this challenge with some urgency.  This will require transformation of local planning policy, legislation, large-scale release of public land and much greater investment.  We also need to harness the unrivalled collective brain-power and creativity of Oxford to generate the new and inventive solutions needed to create affordable, low carbon homes within the heart of our great City.

Failing to grasp the housing crisis will come at greater cost later on.  What a legacy it would be if it was Mrs. May who finally got to grips with the persistent and enduring shortage of homes in Oxford and across the UK.  The PM has already referenced the ‘need to do far more to get more houses built’ and stop the decline of home ownership.  However, she has also ruled out any changes to the green belt policy.  This should raise alarm bells and persuade Oxford residents and City Councilor’s that housing needs to be higher on its agenda.  More affordable homes are urgently needed in Oxford – both to buy and to rent.  Without them the inexorable increase in average prices and monthly rents seems certain to continue in spite of Brexit and in spite of the Government trying to come down hard to curtail landlord returns when the fault really lies with Housing policy.

For more thoughts and opinion on the Oxford Property Market, please visit the Oxford Property Blog www.oxfordpropertyblog.co.uk

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