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Under the skin of the letting market

Here we share news and views on both the local letting market in & around Oxfordshire and all planned and recent legislation.

The Race for the 2015 Election Begins

Q3 2014

It is hard to keep up with all the recent housing policies and so we include a summary in this Oxfordshire Letting Report for Quarter 3 (July, August, September). Crudely, they split into two: policies to generate income (eg. the Mansion tax) or policies to try and build  more houses. From June 2013 – June 2014 only 114,440 new houses were completed¹.

A shortage of new build housing is a key Oxfordshire issue, and that is why our panel at  Property Intelligence on 8th October debated it. You can find a summary at The Mansion Tax is designed to win votes and will not get more houses built. All parties need to put more meat on the bones of their policies before we can believe they will get annual new build completions up to 200,000, which is the figure  many industry experts believe is required. Beyond the politics, here is a selection of trends  felt across our offices:

Q3 2014 table 1

Peak demand across the county

Table 1 shows what we have been letting most effectively in Quarter 3, where ‘effective’ is  defined as speed vs. price vs. quality of tenant. Finding a bad tenant quickly does not equal  success. Average rents² at the end of September were 2.3% higher than 12 months before  and 4.6% higher than 24 months before. It is neither fact nor fair to say that rents are going up much faster than inflation.

Rural Arcadia returns to North Oxfordshire

Since 2008 we have seen more tenants shunning villages and wanting to live in the towns mainly for financial reasons. But in Quarter 3, 54% of new tenancies negotiated by our  Banbury team were in villages; the highest number for over eight years. People want the rural lifestyle with the caveat that the house must be modern and warm inside, for example Photo 1.

Abingdon benefits from Oxford overflow

Any property is a trade-off between size, location and price. We are seeing some good  applicants, often from the public sector, choosing Abingdon instead of Oxford for more  space and/or lower rents. If people do not work standard hours, or they occasionally work from home, the traffic into Oxford is less of a barrier. A case in point is Photo 2, an Abingdon apartment which let to a couple who both work in Oxford.

Wanting the fish but ordering steak
People do not always know what they want, even when they think they do. Good letting people use their ears more than their mouth and think laterally. A case in point is a great  family who first contacted our Abingdon office in July. They then wanted to live in Oxford but we kept listening and thinking and eventually found them a wonderful part of a mansion near Faringdon, Photo 3.

Q3 2014 Figure 1

Investors should think beyond ‘new build’

In our Quarter 1 report we wrote about the widening gap between sales and rent values and Figure 1 plots this. While this is illustrative, not definitive – as you will likely know examples of sales prices increasing more than 20% in four years – when sales prices increase more than rents, the yields go down. Investors now have to look harder to find  good value investments but they are still available. New build schemes attract investors and tenants alike, but when yields dip due to high sales prices (a trend boosted by Help to Buy) we are advising people to consider second-hand property as well, for example Photo 4 in OX1 let at a 4.5% gross yield and Photo 5 in Bicester let at a 4.6% gross yield.

Not every job needs a particle physicist

The local economy is thriving: JobSeeker Allowance rates are below pre-recession levels at 0.8% for Oxfordshire against 2.3% nationally. Indeed, South Oxfordshire’s rate of 0.6% is almost the lowest in the UK³. While the PhDs of Science Vale and similar ‘added value’ jobs
form the spine of the county’s economy, less headline-grabbing roles support the rental sector in an important way too. For example, a couple taking a 2 bedroom apartment in  Bicester where one works at Bicester Village and the other works in a semi-skilled industrial role.

Building is booming
“Residential investment” does not always require buying additional properties. Bricks & Mortar, our building division, saw its busiest summer ever as owners committed to the rental sector for 5+ years and invested to increase yields and capital values. From new bathrooms and kitchens to loft conversions and kitchen extensions – they all add value if specified and executed well. Photo 6 is a house in Headington where our project created a
36% rent increase. The trick is to dovetail the work and new tenancy to minimise voids and in this example we sourced the perfect incoming family.

Irresponsible local authority advice

A couple of Oxfordshire councils are advising tenants to breach their tenancy agreement and refuse to leave when the tenancy ends if that tenant seeks social housing and none is available. While nobody wishes this predicament on anyone, it is not responsible to advise a tenant down this route. We have handled three cases so far in 2014 and each causes significant distress to the incoming tenant (who cannot move in) and landlord (who has not asked for this situation).

1 Department of Communities and Local Government – House Building June 2014 Quarterly report
2 Internal figures based on a revolving portfolio
3 September 2014 figures from ONS. Hart in Hampshire and the Shetland Islands are at 0.5%

Q3 2014 summary