Rents in Scotland show no rise, latest index shows

Residential rents in Scotland have begun to plateau as growth cools off in urban centres but are still at an all-time record high of £549 per month.

In July there was no change in the average rent and there has been a down turn in annual growth, according to the latest buy to let index from lettings agent network Your Move.

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.

‘We 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,’ said Brian Moran, lettings director at Your Move Scotland.

‘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 ramp up again as autumn approaches, and the age old disparity between available homes and those looking to rent rears its head again,’ he pointed out.

He explained that the record rents are not necessarily found in areas where they would expect to be. ‘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 nationwide demand for homes,’ said Moran.

A regional breakdown of the figures show that rents are higher than a year ago across the country while they are at an all-time high in the East, the Highlands and Islands and the South of Scotland.

The average monthly rent in the Highlands and Islands has increased at the fastest rate over the past year, up 5.4% since July 2014 to reach a record £568 per month. Compared to a year ago, the East of Scotland has witnessed a 3.8% 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% rise year on year.

But rent growth in Scotland’s foremost urban centres appears to be on a cooler trajectory. In Edinburgh and the Lothians the typical monthly rent is now 1.8% higher than in July 2015, while Glasgow and 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 and Clyde, where average rents dropped 1.5% during the month.

Month on month rent rises have also slowed in Edinburgh and the Lothians, down from 1.7% the previous month to a 1.3% uplift during July. Rents in the Highlands and 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.
 
The index data also shows that average gross yields on Scottish rental properties stand at 4% as of July 2015, consistent with the previous month. Gross yields are stabilising after some fluctuation over the past 12 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 12 months to July 2015. This is up from 6.1% the previous month, but represents a reduction from total annual returns of 9% 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 12 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.

‘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,’ said Moran.

‘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,’ he pointed out.

The proportion of rent in arrears increased in July to 9.6%, up from 9% in June. In comparison, across England and Wales this proportion stands at 8.4% in July 2015. The index data shows that this is part of a longer term trend of rising tenant arrears in Scotland. Rental arrears have risen from 6.2% in July 2014.

‘There are still too many tenants in Scotland 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,’ said Moran.

‘We need a 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,’ he concluded.