Average residential rents in Scotland reach new peak
Average rents in Scotland reached a new peak of £544 per month in May after a record monthly increase of 1% and annual growth of 2.7%, the latest buy to let index shows.
The rise was led by a 1.9% monthly increase in the south of Scotland, the biggest regional change and annual growth is now the fastest since the summer of 2014, according to the latest index from Your Move, one of Scotland’s largest lettings agent networks.
The average Scottish rent has reached an all-time high of £544, following a 1.0% boost in May 2015. In contrast, over the past six months, rents have risen by an average of just 0.1% per month. May’s rise represents the strongest monthly uplift on record, as rent growth begins to pick up.
This also represents a significant increase from 1.6% annual growth in April 2015 and 1.3% in March, after a recent lull in annual rent rises.
According to Brian Moran, lettings director at Your Move Scotland, the rental market has seen growth more than doubled since March, when annual rent rises were only 1.3%.
‘After a downtrend in rent growth over the winter months, we’re now back on par with the rate of rises a year ago. In fact, at the same time last year, rents were rising at a moderately faster pace, with 2.8% annual growth in May 2014,’ he pointed out.
He also explained that affordability is one of the main handicaps reining back private sector rents from rising even faster, but with recent boosts to wage growth, most household incomes are weighing in higher, and tenants can finally afford to pay more.
‘However, this needs to go hand in hand with supply. With a strong economy and sturdy jobs market, demand for homes to let is standing tall. The stock of available housing needs to rise to match this level to maintain the delicate balance with rent rises, and tenant incomes,’ he added.
Rents are higher than a year ago in all but one of the five regions of Scotland. Compared to last year, rents in Glasgow and Clyde have seen the biggest movement, rising 5.7% in the past 12 months, equal to £30 in absolute terms. This brings the typical rent in the region to £566 as of May 2015.
The second most significant increases were found in the South and the East of Scotland, with average rents in these both regions up 2.7% since May 2014. Rents in the Highlands and Islands experienced more moderate annual rent growth of 1.9%.
Edinburgh and the Lothians is the only region where typical rental prices have fallen year on year. The average monthly rent in the region is now 0.6% lower than it was a year ago. At £593 per month, the average rent is now considerably below its November 2014 peak, when prices reached £617.
On a monthly basis, rental prices have risen across all regions of Scotland. Rents in the South have experienced the greatest month on month increase, with typical rents up 1.9% since April 2015. As a result, rents in the South have reached a new record high of £510 per month. Since April, average rents in the Highlands and Islands have increased 1.2%. In Glasgow and Clyde rental prices are 1.1% higher than a month ago, and Edinburgh and the Lothians have seen 0.7% rent growth over the past month. The East has seen the slowest monthly uptick, up just 0.2% in May.
The index also shows that as of May 2015, the average gross yield on a rental property in Scotland stands at 3.6%. This is consistent with last month, however shows a fall on a year ago, when gross yields were 4%.
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 17.3% in the 12 months to May 2015.
This is a significant rise from a year ago, when total annual returns were 8.9%. However, this has tailed off slightly from 18.0% the previous month, and a record 19.3% in March 2015, as house price growth starts to stabilise after the distorting impact of the new Land and Buildings Transaction Tax introduced on 01 April.
In absolute terms this means the typical landlord in Scotland has seen a return, before any mortgage payments or maintenance costs, of £27,400 in the year to May 2015. Of this, rental income makes up £5,900 while capital accumulation on an average buy-to-let property amounts to £21,500 in the past year.
‘Double digit total annual returns are a great bonus for existing Scottish property investors, and put them head and shoulders above their counterparts south of the border, with returns in England and Wales currently standing at 9.5%,’ Moran explained.
‘However, gross yields in Scotland have slipped back slightly as a side effect of the recent property price bump and fervent activity in the Scottish housing market, as the new Land and Buildings Transaction Tax comes into play. But with rent rises gathering pace, the case for investing in buy to let is still shining bright. This inflation of rental income ensures a good cushion for landlords, ensuring a smooth ride over any fluctuations over longer term property price gains,’ he said.
‘The only thing that could seriously sour the taste for landlords is the implementation of further tenancy regulation and legislation in Scotland. This threatens to dissuade new investment into the sector, and limit the selection of homes to let available for tenants, which would brew up stronger competition, and subsequently price rises,’ he added.