However, the average figure is being distorted by high increases in some regions such as Edinburgh and the Lothians where rents were up by 6.4%, the buy to let index from lettings agent Your Move shows.
Meanwhile, rents in the East of Scotland were 1.7% lower than a year ago and they fell by 0.2% year on year in Glasgow.
The index also shows that slower house price growth is hampering landlord returns with a fall of 5.8% in the year to January but arrears have improved with 11.1% tenants late paying, the lowest level since July 2015.
Previously, arrears surged over the autumn to reach a record high of 13.8% in October 2015, before beginning to improve. However, tenant’s finances remain in worse shape than 12 months ago. In January 2015 as little as 7.1% of all rent due was late.
A breakdown of the figures show that in January 2016, rents in Edinburgh and the Lothians were 6.4% or £38 higher than a year ago, the fastest annual rent rise on record. This is nearly three times quicker than average rent growth across the whole of Scotland.
On average, across Scotland as a whole rents climbed 2.3% in the 12 months to January 2016, equal to £12 in absolute terms. This is only slightly faster than 2.2% in the 12 months from December, though represents an annual acceleration compared to the 1.3% annual lift recorded in January 2015.
‘In different parts of Scotland, powerful interplays between supply and demand are shaping the regional rent patterns that are emerging. In popular cities like Edinburgh where the jobs market is hottest the competition to find homes means tenants have to act quickly. As a result, we’re seeing exceptional rent growth in some parts of the country while in others, lettings market activity is much calmer,’ said Brian Moran, lettings director at Your Move Scotland.
‘However there’s also another ingredient added to the mix now. The private rented sector is in a state of uncertainty, as landlords wait with baited breath while the Private Tenancies Bill progresses through the Scottish Parliament. Nervous landlords may be acting now before their hands are tied, and they lose control of the rent they can charge. This could have prevented a seasonal dip between January and December instead of the steady picture we have seen,’ he explained.
‘Encouragingly, the latest rent rises are underpinned by good news. We should also be looking at tenants’ bottom line. Arrears are falling which speaks volumes for affordability right now. With rents below their price peak, many tenants have been seizing the opportunity to move out of season, while good deals are available,’ he added.
On a regional basis three of the five regions of Scotland have seen rents rise in the year to January 2016. Edinburgh and the Lothians have now reached a new record high of £642 per month. The 6.4% annual growth in this region marks a steep acceleration, up from 4.8% in the 12 months to December 2015 and also represents a record level of rent rises.
But Edinburgh and the Lothians isn’t the only area which has seen record breaking annual rent rises. Rents in the South have risen 6% or £29 in the year to January, the fastest increase on record and Highlands and Islands recorded rents climbing 3.7% since January 2015, equal to £21 in cash terms.
At the other end of the spectrum, in the East of Scotland the average monthly rent in the region is now 1.7% or £9 lower than a year ago at £519, down from a peak of £531 in summer 2015. Rents in Glasgow and Clyde have also fallen year on year, recording a 0.2% annual drop in January.
In addition, the majority of regions in Scotland saw rents fall between December and January. The steepest monthly drop was in Glasgow and Clyde, with rents now 0.7% lower than in December. Rents in the East of Scotland have dropped 0.5% in January and by 0.2% in the Highlands and Islands.
Only two regions of Scotland reported a month on month increase in rents. The South of Scotland witnessed the fastest rise in rents on a monthly basis, with rents up 1% since December 2015, equal to £5. The East of Scotland also experienced a positive movement in rents in January, with a 0.3% month on month upswing.
Taking into account house price growth and void periods between tenants, the typical landlord in Scotland has seen a total annual return of 5.8% in the year to January 2016 before any costs such as mortgage repayments or maintenance. On a monthly basis, total annual returns have fallen from 6.6% recorded in December, as a result of slowing Scottish house price growth. Compared to a year ago, returns are also down from 7.3% in the year to January 2015.
