This is the fastest year on year increase in rents for five months, according to the Scotland buy to let index from Your Move, one of Scotland’s largest lettings agent networks.
Coming back from a winter dip, the pace of rent growth has increased solidly from a 1.3% annual rise in March 2015, and 1.1% in February.
As of April 2015, the average residential rent across Scotland stands at a record £539 per month, matching the peak set in November 2014.
While rent growth is quickening on an annual basis, in the month to April, average Scottish rents rose just 0.1%, the data also shows.
‘Scottish rents have peaked at a new apex, as lethargic supply of rental homes fails to match up to towering demand for homes to let. After rental prices plateaued over the winter months, we’re seeing annual rent rises start to ascend again,’ said Brian Moran, area lettings director at Your Move.
‘Affordability in the private rented sector now rests on new housing becoming available to let, and more choice for tenants, to keep rents competitive and rent rises in check. Solid rent rises offer clear encouragement for those contemplating buy to let investment, but fears of prohibitive rent controls and additional tenancy legislation in Scotland may be off putting, which could choke off new supply of rented homes, and drive up prices for tenants,’ he explained.
Compared to last year, rents are now higher in three of five regions of Scotland. Rents in Glasgow and Clyde have experienced the greatest year on year increase, with typical rents up 5% since April 2014. The East saw the second biggest annual rise in rental prices at 1.7%, setting a new record for the area in April 2015, with the average monthly rent now £531. In the South of Scotland, rents have climbed a more modest 0.7% in the past 12 months.
In two regions of Scotland, rents are now cheaper than they were a year previously. Edinburgh and the Lothians has witnessed the biggest fall in rent prices year on year, down 0.8% in the 12 months to April 2015. In the Highlands and Islands, rents are now 0.6% lower than in April 2014.
On a monthly basis, rents have risen across three of five regions in Scotland. In Glasgow and Clyde, the average rent has climbed 0.8% in the past month, to £563. In both the East and the Highlands and Islands, rents have risen 0.3% since March.
Rents in the South of Scotland have remained static month on month, staying at £498, the lowest average rent price across the whole of Scotland while Edinburgh and the Lothians is only region in Scotland to witness a monthly drop, with rents falling 1.2% since March 2015. Despite this, the typical residential rent there continues to be higher than elsewhere across the nation, standing at £588 per month.
The index report also shows that Scottish tenant arrears are still on the rise, reaching a new high in April 2015. Rent in arrears accounted for 9.2% of all rent due in April, up from 8.6% in March. This also signifies a big increase from 6.2% in April 2014.
‘Household finances are a struggle for some in Scotland, and a minority of tenants are still mired in the red. Renters are much more likely to be in a job than a year ago, but when it comes to paying the rent on time, wages are critical too. Much headway has been made regarding the employment rate in Scotland, but it’s time for earnings to experience the same growth,’ said Moran.
‘On the other side of the coin, an overwhelming 98% majority of tenants never fall into the most severe arrears. The odds of a tenant failing to pay their rent within two months remains extremely slim. The absolute number of tenants in severe arrears is bound to increase alongside the increase in the number of people renting, but proportionally this is stable and still only represents a tiny sliver of those living in the private rented sector,’ he pointed out.
‘Ultimately, tenant finances already act as one natural limit on rents. Rent prices must remain affordable for tenants, if landlords are to make any rental income from their investment. Void periods or rent paid late are more of a financial danger to landlords, which may explain why rent rises in Scotland are being reined in, as Scotland’s economic recovery is still feeding into household incomes,’ he added.
As of April 2015, the average gross yield on a rental property in Scotland stands at 3.7%. This is on par with last month, but represents a decline on an annual basis from 4.1% in April 2015.
Taking into account property price growth and void periods between tenants, the average total annual return on a buy to let investment in Scotland stands at 15.2% in the 12 months to April 2015. This has increased further from 14.7% the previous month, and has doubled from 7.6% in April last year mainly as a result of accelerating house price growth before the new Land and Buildings Transaction Tax was introduced.
In absolute terms this means the typical landlord in Scotland has seen a return, before any mortgage payments or maintenance costs, of £23,820 in the year to April 2015. Of this, rental income makes up £5,842 while capital accumulation on an average buy-to-let property amounts to £17,978 in the past year.
‘Landlord returns have doubled in the past year. But it’s worth remembering that we’re experiencing some extraordinary behaviour in the Scottish housing market at the moment, which lies largely at the root of this. House prices in Scotland are currently rising twice as fast as those in the rest of England and Wales, as a result of a short term shot of activity before the new transaction tax was enforced,’ said Moran.
‘Now we’re under the new regime, this momentum is likely to calm to more sustainable levels so landlords should adjust their expectations accordingly. Long term capital gains should always be a plus for all landlords, rather than something to take for granted,’ he added.
‘Gross yields and regular rental income act as a fairer barometer, and these are both cruising along on an even keel. Slow and steady rent rises are amounting to sturdy rental income. With economic conditions stacked in their favour, the only factor that may dissuade further investment from landlords into the sector is the threat of restrictive rent controls,’ he concluded.
