Rents in Scotland continue upwards but still 30% below England and Wales
Residential rents in Scotland accelerated again in March with annual growth of 1.3%, up from 1.1% in February, according to the latest buy to let index.
Average monthly rents in Scotland now stand at £539 and they are some 30% lower than the typical rent in England and Wales, the index from lettings agent network Your Move also shows.
Total annual returns on rental properties in Scotland reached the highest level on record at 9.7% on average in the 12 months to March 2015, up from 7.2% a year ago. This is equal to £15,000 per property before any mortgage payments or maintenance costs, but taking into account property price growth and void periods between tenants.
Buy to let investors in Edinburgh have experienced the strongest annual returns in the last year of 13.4%, equivalent to £27,135 in cash terms.
In the month to March, Scottish rents increased 0.3% overall, the strongest monthly uptick witnessed since October 2014, after a winter downtrend.
‘Despite surging demand for homes in the private rented sector, Scottish rents have been treading water in recent months, allowing tenants some valuable breathing space over the winter. Now we’re starting to see growth scale up again in the spring, as the rental cycle starts to gain momentum,’ said Brian Moran, area lettings director at Your Move.
‘But even this is still at very modest levels compared to the rest of the UK with rents rising at less than half the pace as being seen in England and Wales,’ he added.
A breakdown of the figures show that on an annual basis, rents have risen across three of five regions in Scotland. In Glasgow and Clyde, rents have seen the biggest increase over the past 12 months, with rents now 3.6% or £19 higher than in March 2014. Edinburgh and the Lothians have experienced a 2.3% jump in rent prices year on year, and the East saw a more modest 0.8% annual rise in rents.
Rents have fallen across two regions of Scotland in the last year. The Highlands and Islands witnessed the most significant annual drop, with rents falling 1.9% and in the South of Scotland rents are now 0.1% lower than a year ago.
Compared to last month, rents are higher in only two of five Scottish regions. Rents in the South of Scotland saw the biggest monthly uplift in March, but still have the cheapest monthly rents across the country, at £489. Rents in this area have climbed 1.8% since February 2015, as rent growth starts to get back into its stride a long spell of price drops in the latter half of 2014.
The only other location to experience a boost in rents in the past month was Glasgow and Clyde, with rents rising 0.3% during March.
The majority of regions have witnessed a fall in rents month on month. The steepest drop in rents was in the Highlands and Islands, down 0.6% since February. Edinburgh and the Lothians experienced a 0.5% monthly fall in rents, while prices in the East dipped 0.2% in the month to March 2015.
Taking into account rising property price growth and void periods between tenants, the average total annual return on a rental property in Scotland is 9.7% in the 12 months to March 2015. This represents a steady uplift from 9.6% last month, and a bigger jump from 7.2% a year ago, as we experience an uptick in house price growth ahead of the introduction of the new transaction tax.
In absolute terms this means the average landlord in Scotland has seen a return, before any mortgage payments or maintenance costs, of £15,031 in the year to March 2015. This is made up of £5,839 of rental income and £9,192 of capital gains, the index report shows.
If rental properties continue to rise in value at the same fast rate as witnessed over the past three months, the average buy to let investor in Scotland could expect to make an overall annual return of 17.5% in the coming year, equal to £28,864 per property. Of this, rental income would account for £5,826 while capital accumulation would total £23,037 if market trends of the past three months continue.
As of March 2015, the average gross yield on a rental property in Scotland stands at 3.9%. This is consistent with last month, but represents a year on year drop from 4.1% in March 2014.
‘Landlords are seeing higher returns than ever on their buy to let investments, and it is capital gains that have done the majority of the legwork, as the new transaction tax has put the foot on the accelerator of property prices lately. Rent rises are strolling forward at more of a leisurely pace, ensuring tenants can sit comfortably, but gross rental yields are robustly staying the course regardless,’ explained Moran.
But it’s not just landlords who can benefit from the current lay of the land, and they often find themselves head to head with first time buyers in the house purchase market. The only way out of this conundrum is to build more properties in the first place, to balance demand for housing on all fronts, and keep future rent rises affordable,’ he added.
The index report also shows that Scottish tenant arrears have continued to climb, reaching the highest proportion on record in March 2015. Rent in arrears climbed to 8.6% of all rent due in March, up from 8.1% in February. This also represents a significant worsening of the health of tenant finances on an annual basis, increasing from 6.5% in March 2014. Previously, late rent peaked at 8.5% in December 2012.
‘When it comes to tenant finances, the picture has only got bleaker over the past two years. Many renters are still marooned under a cloud of late rent, in places where the overarching economic recovery hasn’t broken cover,’ said Moran.