After peaking at record prices in the summer, Scottish rents have been falling in recent months but there are signs that growth is starting to rally again, according to the latest buy to let index from lettings agent network Your Move.
They increased by a modest 0.2% between September and October, the first month on month rise since July, and takes the average monthly rent in Scotland to £546, just £1 higher than the previous month in cash terms.
Despite widespread recognition that tenant demand is currently outpacing supply of available homes to let, landlords believe that rent rises are likely to continue on a slower trajectory than witnessed earlier this year.
Indeed, according to the latest Landlord Survey from Your Move, landlords expect rents to increase by just 1.4% over the next 12 months. Only 32% of landlords are intending to raise their rents next year, with the main motivation being to cover the cost of inflation.
‘There are indications from landlords that this trend will continue until 2016. Ultimately, rents in the private rented sector reflect what people are willing and able to pay, and are delimited by household incomes and monthly earnings,’ said Brian Moran, lettings director at Your Move Scotland.
A breakdown of the figures shows that rents are higher year on year in every region of Scotland except Glasgow and Clyde in October. Scotland’s second city has seen a 0.9% drop in rents since October 2014. This means the typical rent in the area now stands at £560, down from a record of £575 in the summer of 2014.
Compared to a year ago, the Highlands and Islands has experienced the biggest increase in rents, up 5.7% in 12 months. However this rate of growth is starting to slow after a monthly price drop in October, and rents have come down from their historic peak in September. After this, average rents in the South of Scotland are up 2.6% year on year.
Annual rent growth in Edinburgh and the Lothians has increased from 2% in September to 2.5% in October, meaning that rents are now £15 more expensive than a year ago in Scotland’s capital city. Standing at £630 per month, this is a new record for rent prices in the region, and 15% higher than the average rent in Scotland overall.
The East of Scotland has experienced a more modest 1% uptick in rent prices in the past 12 months, with monthly rents rising by £5 to £522.
Three of the five regions of Scotland have seen rents increase in the past month. The urban centres of Edinburgh and the Lothians and Glasgow and Clyde have seen the strongest month on month rises, with rents up 1.1% since September. The East of Scotland has seen a 0.2% monthly increase in rent prices, in the first month on month rise since July.
The South of Scotland have experienced the biggest drop in rents on a monthly basis. Here, rents are 1% lower than in September. Average monthly rents have also fallen in the Highlands and Islands, down 0.5% month on month, the first monthly drop since April, following a sustained summer of growth.
The index also shows that Scottish tenant arrears have climbed to a fresh record in October, with the proportion of rent in arrears rising to 13.8% of all rent due in the month. This is the fifth consecutive month that tenant arrears have worsened, rising from 8.8% in May of this year, and up from 13.2% the previous month. On an annual basis, rental arrears have more than doubled, increasing from 6.5% of all rent in October 2014.
‘Since May, rental arrears have been moving in only one direction and it’s not where we want them to be heading. More needs to be done to turn tenant fortunes around and divert them back onto the right road, but in the meantime, it’s vital that the channels of communication are kept open between landlords and their tenants,’ said Moran.
‘Scottish rent growth is coasting along at a sustainable speed, and can hardly be accused of going off the rails. It is unemployment in Scotland that has been accelerating over the summer, and is now higher than the UK average,’ he explained.
As of October 2015, the average gross yield on a Scottish rental property stands at 4%, consistent with the previous month. Compared to a year ago, gross yields are also holding steady with October 2014, but there has been significant volatility within these 12 months, as a result of house price distortions surrounding the implementation of the new Land and Buildings Transactions 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 5% in the year to October 2015. This represents a modest dip from 5.6% in September, but a more significant fall from 9.3% in the year to October 2014.
In cash terms this means the typical landlord in Scotland has seen a return, before any mortgage payments or maintenance costs, of £8,000 in the last year. Rental income makes up £5,900 of this sum, while capital appreciation on buy to let property amounts to £2,100 in the 12 months to October 2015.
