Rent growth accelerated on a monthly basis over the past three months as polling day approached, according to the Scotland Buy to Let Index from Your Move, one of Scotland’s largest lettings agents network.
The data shows that rents have increased in every region of Scotland over the past year with new records in Edinburgh and Glasgow. Cumulatively, average residential rents have risen 1.3% in the three months to August 2014.
Doubt over the outcome of the referendum and lack of clarity over the mortgage and taxation consequences of a possible ‘Yes’ vote, prompted people to delay purchase decisions, and consequently heightened demand in the private rented sector.
The average residential rent across Scotland is now 2.7% higher than in August 2013, currently standing at £537 per month. In cash terms, this represents a rise of £14 from a year ago. This is the highest level of average residential rent in Scotland on record, and is up 0.5% since July.
‘While the independence debate has been raging, many households have been battening down the hatches and waiting to see which way the wind blows before buying property. This has boosted demand in the private rental sector, which has acted as a safe harbour and stop-gap on the journey to home ownership,’ said Gordon Fowlis, regional managing director of Your Move.
A breakdown of the figures shows that rents have risen on an annual basis across all five regions of Scotland and have climbed to new record peaks in both Glasgow and Clyde, and Edinburgh and the Lothians in August.
Glasgow and Clyde saw the fastest annual increase, with average monthly rents up 5.5% or £30 on August 2013, and now standing at £575. This is followed by 3.8% annual growth in Edinburgh and the Lothians, where rents rose by £22 over the past year to an average £602 per month.
In three out of five regions, rents are higher than the previous month. The steepest month on month increase is in Glasgow and Clyde, with rents increasing 4.2% between July and August 2014. In Edinburgh and the Lothians, rents have risen 0.2% over the past month, and rents in the East are up 0.1% from July.
Two regions have seen rents dip on a monthly basis. The South witnessed the biggest fall in average rents, down 2.2% in the month to August, while in the Highlands and Islands rents were 0.2% lower than in July.
As of August the gross yield on a typical rental property in Scotland stands at 4%. This represents a fall of 0.2 percentage points since August 2013 when the gross yield on a rental property averaged 4.2%. However, yields are holding steady on a monthly basis, at 4% over the past four months.
Taking into account price growth alongside void periods between tenants, the total annual return on an average rental property stands at 9.9% in the 12 months to August. This has grown from the 3.2% annual return buy to let investors could expect in August 2013. This also represents a rise on a monthly basis from 9.3% in the year to July.
In absolute terms this means the average landlord in Scotland has seen a return, before any mortgage payments or other deductions, of £14,904 in the last 12 months.
Looking ahead, if rental property prices continue to rise at the same pace as over the last three months, the average buy to let investor in Scotland could expect to make a total annual return of 10.5% over the next year, equivalent to £16,729 per property.
‘An attractive recipe of secure capital gains, consistent yields, and unrelenting tenant demand is encouraging buy to let investment. Landlords are seeing their returns boosted by buoyant rental income, but the benefits are trickling down to tenants too. As an attractive investment opportunity, landlords are adding to the pool of rental properties available on the market. That is ensuring that rent rises remain lower than they otherwise would be,’ explained Fowlis.
The report also shows that August saw a setback for the health of tenant finances. The proportion of late rent has risen from 6.2% in July to 6.5% in August. This also represents a worsening of tenant finances on an annual basis, as the proportion of rent paid in arrears has risen from 5.8% in August 2013.
‘Last week’s No vote may not have eliminated all the questions around Scotland’s future, but as the country moves forward and begins to put the referendum behind us, we can concentrate again on keeping the economic recovery on track and wage momentum moving,’ said Fowlis.
‘It is not just enough to get people into work. There is a second battle to be fought on average earnings to help households stay out of the red,’ he added.