Happy Harvest… again.

Posted on 16th October 2018 by Adam Mackrell

“So what is happening at the moment” with our beloved housing market in the UK and its effect on our equally beloved rental sector (PRS and SRS). This is a question i have been asked a lot recently from South Africa to Monaco to Dubai to Sheffield…Are our investments safe? What will Brexit do to this? How is the political risk here in the UK affecting this? These threads are the most common questions recently and not just from prospective investors but some partners too.

I am going to attempt to tackle some of these from our perspective  briefly and as far was we are concerned. And based mainly on our experience – which is considerably more valuable we feel  opposed to just simply “our opinion!” But there will have to be a little bit of that too, for what its worth. 

The Brexit question…?

We believe that it will blow over pretty quickly in the housing market (post, literally any kind of deal) and ultimately that house prices on national average will be slightly down for 12 months or so and then will pick up and continue to rise again – fairly sharply in certain places (No we are not saying where we believe these to be!). The hype and hoopla surrounding #Brexit reminds me a bit like the Y2K millennium bug (remember that?) New years eve 1999… Computers would crash, wrecking life as we knew it, planes would fall out of the sky…etc etc, even books were written and countless trees felled to cover the broad and tabloid media headlines mainly reporting “the coming chaos!”. 

What happened – basically nothing. Like that potential “chaos” it will be managed and ultimately nothing will change – business as usual generally and especially in the housing and rental sector. 

Come this time next year we believe national house prices broadly speaking will be around 5% down across the board. We believe this is mainly due – to the same reason that some potential investors are struggling to  reconcile our good deal in front of them and the decision / action to actually put some hard earned money in right now – and that is many people are simply unsure and just put off anything for now because of perceived uncertainty – thats human nature right? As opposed to an actual problem with the market / products themselves. Therefore less decisions are being made of this type, less houses therefore are being bought/invested in, and therefore those who have to sell will except less. This in turn will be reflected in figures made available next year for this year…Still following me…Good.

Private landlords being pushed out…?

Yes indeed they are, the institutionalisation of the PRS and Social side of rental tenure as we like to call it. Most people have woken up to the brutal fundamental facts that there are too many people (and more on the way) and not enough housing, as well as basics like simple economics = supply low demand high and “voila” big house price value growth.. Or the perceived rising cost of buying a house.  

So we like to track a thing called the “invisible house price index” where you take the average customer, buying the average house at the average cost (mortgage rate). IE as OSG likes to call it “MRP”, majority representative properties. So repayments have been flat for several years now so the reality is it hasn’t cost the average / majority anymore to buy a house than in the last several years regardless of the overall price going up or not. After ten years of cheap money we are moving in to the end of that cycle and already the cost to the “wholesale cost of funds” for lenders has gone up. Therefore the costs for the end user will begin to go up too. 

The social engineering project exercise of the last five years or so is moving this kind of residential housing PRS and social side to institutions because A) there is a lot of money to be made, relatively safely and B) it can be regulated, standardised and made safer – for the end user – all round by doing so. SDLT increases, overseas buying restrictions, ATED, the end of tax relief on borrowing, tighter EPC’s and so on is all part of this exercise and will help us move back to that pre 50”s cycle of major majority rental market! More people will rent and as per most professional, well researched and common sense analysis the rental market will be 50 – 60% of the total housing tenure by 2025, over 2 million additional rental properties will be needed by 2025 and build to rent will be come mainstream, if it isn’t already.

Virtual landlord or a passive fund..?

Good question. Naturally I am inclined to “pump up” my own fund as different, nimble, outrageously fair and most importantly returning way above average funds (most of them) and certainly than all P2P type deals around. Most P2P platforms are performing at around 3% NET and are untested structures in comparison to the close ended fund structure that is proven and in our case at least is returning just under double the P2P average. Headline Fund averages are around 4% NET with higher costs and considerably more bureaucracy than a smaller more adaptable fund that is more specialised in certain areas and doesn’t invest in any new build (where you pay a 20% premium straight off the bat). 

So its Autumn and the rain and the leaves are falling…. So it seems are property prices, investors and private landlords yields and like the shorter days now upon us, the window of opportunity for private investors to grab an opportunity in this sector shortens… The only things that are becoming better and better  are the return for our limited partners on investment, the UK’s economic figures  and the England full international football teams performances. (2-3 away against Spain of all people!! Wow) 

Happy Harvest  – The yields are getting healthier and healthier. 

Adam Mackrell 

Director 

Oxford Spires Group