Scottish rents grind to a festive halt

The latest data on Scottish rents from Your Move has found that during the run up to Christmas, rents are at a standstill.

Related topics:  Landlords
Warren Lewis
23rd December 2015
scotland money

The average residential rent in Scotland is now just 0.1% higher than the previous month – a 35p increase since October, meaning that Scottish tenants are still paying on average £546 per month in November. The rate of growth has dipped from a 0.2% uplift between September and October.
 
On an annual basis, the pace of rent rises in Scotland is continuing to decline. November marks the fifth successive month where annual rent growth has slowed. With Scottish rents now just 1.4% higher than a year ago, the pace of annual rent rises has more than halved since the June peak – when rents were up 3.1% year-on-year. Average Scottish rents are now £3 below their summer 2015 peak.

Brian Moran, lettings director at Your Move Scotland, comments:  “As the temperatures drop, Scottish rents have also been freezing over, and rent rises are looking decidedly cooler. With Christmas coming up, many canny Scottish tenants will have seized the chance to snap up a better deal in the off-peak lettings market before the January jamboree when people make fresh starts and start jostling for new tenancies.

But come 2016, the traditional spring-time thaw may be stimulated by factors other than the natural cycle of the lettings market. With an additional 3% levy on second home purchases coming into force in April in Scotland – echoing the stamp duty system operational across the rest of the UK – further buy-to-let investment will likely be fast-tracked to the start of 2016. But after that deadline, and with the proposed rent controls and additional regulation under the Private Tenancies Bill, fresh supply is likely to be put on ice. Rents will then be ultimately be vulnerable to the shrinking pool of available homes for let. Landlords and the private rented sector have become a popular target for the Government recently – but any attempts to curb investment in the private rented sector, and undermine landlords, will only have an adverse effect on tenants’ rents.”

Rents by region

As of November, rents are higher month-on-month in three of five regions of Scotland.
 
With the biggest monthly boost of any region, average monthly rents in Edinburgh & the Lothians have reached a new peak of £635 in November, growing 0.8% (over £5) since October.

But the other positive monthly rent rises were more modest during November. Rents in the South of Scotland have climbed just 0.2% since October. Similarly, average rents in the South are only 0.1% higher on a monthly basis.

Glasgow & Clyde experienced the most significant monthly fall in rents – down 0.6%, or £3, in the month of November. The Highlands & Islands have also witnessed a 0.1% decrease in average rents since October.

The picture is also mixed on an annual basis, with only three of the five regions of Scotland seeing rents increase in the past year.  The Highlands & Islands have witnessed the fastest year-on-year rise, with rents up 5.8% since November 2014. This has boosted the average monthly rent by £31 in the last twelve months, to stand at £569 in November 2015.

The next strongest annual increase took place in the South of Scotland, following a 3.1% boost in rent prices in the year to November. In Edinburgh & the Lothians, typical rents are now 2.9% higher than in November 2014, a rise of £18 in cash terms.

Compared to a year ago, Glasgow & Clyde has experienced the biggest drop in rents – down 1.3% in twelve months. After this, average rents in the East of Scotland are just 0.1% lower than a year ago.

Tenant arrears fall in time for Christmas

After five months of successive rises, tenant arrears in Scotland have finally fallen in November, with the proportion of rent in arrears dropping to 12.1% of all rent due in the month. This is a considerable month-on-month reduction in rental arrears, down from an October peak of 13.8%.  

But while Scottish tenant finances have started to improve on a short-term basis, the long-term trend has been one of rising rental arrears. Compared to a year ago, tenant arrears have jumped from 6.6% in November 2014.
 
Brian Moran comments: “Family finances and rental arrears are determined by a combination of factors, and seasonal elements like Christmas have a big part to play. But after a solid five months of slowing rent growth and ever smaller rent rises, tenant finances in Scotland have finally taken a turn for the better. Rental arrears have been stuck in a downward spiral since May, but November shows a slight reprieve for Scotland’s tenants, as the proportion of late rent improves.
 
We may have reached a landmark moment, but there’s still a lot of ground to be made up – and landlords need to be wise to the reality that, as we approach the festive season, tenant arrears are much higher than they were last November.  The stars won’t align until there are enough rental homes to go around, and until then the right checks and good communication are key to overcoming these affordability challenges.”

Returns strengthening – and highest in Glasgow

The average gross yield on a Scottish rental property stands at 4.0% as of November 2015, in line with October. However this has dipped from 4.1% in November 2014, and a high of 4.2% in June 2015.

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 6.0% in the year to November 2015. This has climbed from 5.6% in October, but is still down from 8.0% in the twelve months to November 2014.
 
In cash terms this means the average landlord in Scotland has seen a return, before any mortgage payments or maintenance costs, of £9,600 in the last year.  Of this, rental income accounts for £5,900 of the total, while capital appreciation on buy-to-let property amounts to £3,700 in the twelve months to November 2015.
 
Landlords in Glasgow & the Clyde have typically seen the biggest returns on their buy-to-let investment, with average total annual returns in the area reaching 9.8% in November – equivalent to £13,000 in cash terms.

If house prices continue to climb at the same rate as witnessed over the last three months, the average buy-to-let investor in Scotland could expect to make an overall annual return of 9.9% in the next year, equivalent to £16,000 per property.

Brian Moran concludes: “Just as the new Land and Buildings Transaction Tax changes will penalise new investors or landlords trying to expand their portfolios, Scottish property prices are also favouring existing landlords. Higher house prices are giving open rein to returns for those who already hold buy-to-let investments, while holding back growth in rental yields. But the cornerstone of reliable rental income remains.

For newcomers to the party, entry to buy-to-let investment is much trickier than a year ago – tax relief has been reduced, there will soon by an extra 3% LBTT levy on second home purchases, and rent control zones and other red tape is also on the horizon. Local factors can become even more important when considering new investments and the best spots for rental yields – and that’s why it pays to do your homework before you take the plunge.”  

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