As of October 2014, average residential rents across Scotland are now 2.2% (or £12) higher than twelve months ago, while across England and Wales monthly rents increased just 1.5% on average in the past year . Scottish rents are currently rising faster on an annual basis than across seven other UK regions.
The average rent in Scotland now stands at £537 per month, back in line with the record set in August this year. Rents climbed a moderate 0.3% (equivalent to £1) in the month to October, recovering from a dip during September.
But taking a longer-term view, the rate of growth has cooled. Annual rent rises have eased from a 3.2% increase over the year to October 2013.
Christine Campbell, regional managing director of Your Move, comments:
“Average rents in Scotland have bounced back to peak level in October, and annually the pace of rent growth is exceeding that experienced across England and Wales. Snags in supply and concerns over potential rent caps are setting the stride in Scotland, but in the longer term, the march of private sector rents is easing back on an annual basis. After years of consistency and incremental adjustments, rent rises quickened rapidly after the changes to lettings legislation made tenancy fees illegal. Instead of facing a one-off payment, tenants saw their monthly rents rise at a much accelerated pace. This market is only just starting to self-correct and steady.
The introduction of any further lettings controls or restrictions by the Scottish government could further disrupt what was a healthy and extremely gradual rhythm of rent growth – to the detriment of thousands of renters. Complicating legislation would ostracise existing landlords and discourage new investment in the private rented sector, squeezing the supply of homes to let and simply adding to the bottleneck of the current housing shortage. The private rented sector is the lifeblood of the economy, allowing workers flexibility and accessibility to the jobs market. Tenant demand needs to be balanced by greater availability of homes to let, to protect against unnaturally bloated rent increases.”
Rents by region
On a monthly basis, rents are higher than September across all but one region of Scotland. The biggest month-on-month increase was recorded in the East, with rents climbing 1.1% (or £5) between September and October. Average rents in Edinburgh & the Lothians set a new peak of £615 per month, following 0.6% growth since September.
The only region to experience a price fall on a monthly basis was Glasgow & Clyde. Here, the average monthly rent dropped £5 or 0.7% in the month to October, to £565.
Rents have risen on an annual basis in three out of five regions of Scotland in October. Edinburgh & the Lothians have seen the strongest annual uplift in average monthly rents, rising 5.7% (equivalent to £33) in the twelve months to October. This is followed by a 3.2% annual increase in Glasgow & Clyde, while rents in the East rose 2.2% over the last year.
Rental prices dropped across two regions over the year to October. The average monthly rent in the South has fallen 0.5% (or £2) since October 2013, and 0.2% in the Highlands & Islands.
Yields and Returns
As of October the gross yield on a typical rental property in Scotland stands at 4.1%, the same as the previous month. While stable on a monthly basis, this represents a slight fall of 0.1 percentage points since October 2013, when the gross yield on a rental property averaged 4.2%.
Taking into account price growth and void periods between tenants, the total annual return on an average rental property stands at 8.9% in the twelve months to October. This has grown from just 4.2% a year ago, and also represents a slight rise on a monthly basis, from an 8.7% average annual return in the year to September. However this has eased back from a peak 9.4% in June this year, as house price growth cooled ahead of the independence referendum.
In absolute terms this means the typical landlord in Scotland has seen a return, before any mortgage payments or other deductions, of £13,377 in the year to October.
If the value of rental properties continues to climb at the more moderate pace witnessed over the last three months, the average buy-to-let investor in Scotland could expect to make an overall annual return of 3.0% in the next twelve months, equivalent to £4,730 per property.
Christine Campbell comments: “The question of Scottish independence loomed large over the housing market this summer, and property price growth faltered as would-be buyers and investors hesitated to see how the votes rolled in. While this has left a tiny imprint on landlord returns in the past couple of months, this impact was cushioned by stable and resilient rental income – and the outlook certainly hasn’t dulled for buy-to-let. Encouraging consistency in gross yields are sowing the seeds of further investment, attracting new property investors to the mix.
As buy-to-let holds its own against other forms of investment, landlords aren’t the only ones with a boosted bank balance at the end of the month. Greater supply of available homes to let to meet tenant demand ensures rent rises remain healthy and sustainable – easing the financial burden on the thousands of households reliant on the flexibility offered by the private rented sector.”
Tenant Finances
October saw a slight decline in the financial health of Scotland’s tenants. The proportion of rent in arrears in Scotland has edged up from 6.4% in September to 6.5% in October. On an annual basis, this represents a more considerable setback for tenant finances, as the proportion of late rent has risen 0.5 percentage points from 6.0% in October 2013.
There has been an improvement across the UK as a whole looking at levels of the most significant tenant arrears. According to the latest quarterly Tenant Arrears Tracker from Your Move and Reeds Rains, the proportion of tenants facing serious arrears of more than two months now stands at 1.4% in Q3 2014, compared to 1.6% of all tenants in Q3 2013. This means that 98.6% of tenants in the UK private rented sector now avoid slipping into severe rental arrears.
Christine Campbell concludes: “While we’re seeing fewer and fewer incidents of serious arrears and households risking eviction, unfortunately many are still sweating to pay rents on time at the end of the month, and smaller lapses are still more common than they should be. Scotland may be outperforming the rest of the UK with higher employment rates and rising wages, but when the rate of inflation is taken into account, in real terms earnings aren’t helping people climb out of the red.
The private rented sector is alleviating some pressure on the cost of living – with rent growth steadying on an annual basis. But wage growth needs to be energised for tenant finances to make the next advance.”
