The average residential rent in Scotland remains at an all-time record high of £549 per month in July 2015. But on a monthly basis, Scottish rents are showing no change from June, as rents have plateaued after hitting a new peak.
This has been mirrored by a downturn in annual growth in July. Scottish rents are now 2.8% higher than a year ago – however this slowed from 3.1% in the year to June, after a prolonged period of accelerating rent rises in the first half of the year.
Brian Moran, lettings director at Your Move Scotland, commented:
“We’ve reached a tipping point in July. Rents in Scotland have been building to a crescendo so far in 2015, and rent rises have been quickening their step. But now we’ve reached a mid-point in the year, the rental market has clearly paused for breath.
“Tenants will be relieved for now, but only time will tell whether we’ve reached a fork in the road for the private rented sector, or whether rent growth will start to amp up again as autumn approaches, and the age-old disparity between available homes and those looking to rent rears its head again.
“But while the overall momentum may have been suspended in mid-air, rents are at all-time highs – and importantly, not in the areas you might expect.
“With the severe squeeze on housing in the cities, households are casting their nets much more widely for places to live, which is driving somewhat of a renaissance in the more affordable areas of Scotland. And rental prices are holding up a mirror to this nation-wide demand for homes.”
Across every region of Scotland, rents are higher than a year ago. In addition to annual rental growth across the board, prices are now at all-time highs in three regions – the East, Highlands & Islands and the South of Scotland.
The average monthly rent in the Highlands & Islands has increased at the fastest rate over the past year, jumping 5.4% since July 2014 to reach a record £568 per month. Compared to a year ago, the East of Scotland has witnessed a strong 3.8% (£19) rise, bringing the average monthly rent to a historic peak of £531. Rents in the South, while still the cheapest location in Scotland to rent, now stand at £513 per month on average, after a 2.7% (£14) boost year-on-year.
But rent growth in Scotland’s foremost urban centres appears to be on a cooler trajectory. In Edinburgh & the Lothians the typical monthly rent is now 1.8% higher than in July 2015, while Glasgow & Clyde has witnessed a 1.7% yearly climb in rental prices. Average rents in both these regions are below past peaks.
On a monthly basis, rents have increased across four of the five regions of Scotland, one fewer than last month. The only region to experience a fall in rents during July was Glasgow & Clyde, where average rents dropped 1.5% (£8) during the month.
Month-on-month rent rises have also slowed in Edinburgh & the Lothians, down from 1.7% the previous month to a 1.3% uplift during July. Rents in the Highlands & Islands have climbed 0.9% since June, while in the South and East of Scotland typical monthly rents have increased by 0.2% and 0.1% from June to July 2015 respectively.
Average gross yields on Scottish rental properties stand at 4.0% as of July 2015, consistent with the previous month. Gross yields are stabilising after some fluctuation over the past twelve months – dipping to 3.6% in March 2015 – and are now unchanged from a year ago.
Landlord returns are also showing signs of steadying after some considerable variation as a result of April’s Land and Building Transaction Tax.
Taking into account property price growth and void periods between tenants, but before any costs such as mortgage repayments or maintenance, the average total annual return on a buy-to-let property in Scotland stands at 6.6% in the twelve months to July 2015. This is up from 6.1% the previous month, but represents a reduction from total annual returns of 9.0% a year ago.
In absolute terms this means the average landlord in Scotland has seen a return, before any mortgage payments or maintenance costs, of £10,500 in the twelve months to July 2015. Rental income accounts for £5,900 of this, while capital appreciation on a typical buy-to-let property amounts to £5,600 in the past year.
Brian Moran commented:
“The Scottish housing market has weathered some disruptive changes over the past few months, and it’s made it tricky for landlords to read the buy-to-let forecast.
“However, total annual returns have returned to a calmer and more steadfast course in July – a nice added extra for Scottish landlords on top of their immediate rental income. Crucially, gross yields are also heading north again, which should rally potential property investors after a few diversions along the way after the change in tax regime. Record rents are perhaps the strongest calling card for the sector, and alongside good mortgage deals and low interest rates, should set much more investment into the direction of buy-to-let.
“The grey cloud looming on the horizon at the moment is the overhaul of buy-to-let tax relief. If this manoeuvres future investment away from the buy-to-let sector, at a time when demand is hammering down the door, the competition for homes to let will be intensified – and so will rents. But there’s another side-effect that could hit tenants too. Existing landlords may be forced to recoup these costs by other means, and by raising their rents too.”
The proportion of rent in arrears increased in July, up from 9.0% in June to stand at 9.6% of all rent due in the month, in another setback for Scottish tenant finances. In comparison, across England and Wales this proportion stands at 8.4% in July 2015.
This is part of a longer term trend of rising tenant arrears in Scotland. Rental arrears have risen from 6.2% in July 2014.
Brian Moran concludes:
“There are still too many tenants in Scotland getting that sinking feeling at the end of the month, and slipping behind in their rent payments. South of the border this proportion is much lower, and improving in the long-term. But the trend is moving in the opposite direction in Scotland, even despite strong economic growth, low inflation and a buoyant jobs market helping things along. We need better supply of homes in the private rented sector to set Scotland firmly on the path to greater financial security – and this burden rests on future buy-to-let investment.”
