Across Scotland the average rent now stands at £549, led by growth in Edinburgh and the Lothians with a year on year rise of 12%, the data from the Your Move index also shows.
The report suggests that the cost of the Land and Buildings Transaction Tax (LBTT) surcharge of 3% for additional homes introduced in April has pushed up prices in the market.
‘Rents are rising rapidly as a result of the new Land and Building Transaction Tax surcharge for buy to let properties. This tax hike has dissuaded landlords from investing in the sector leading to a shortage of homes to rent, compared to the demand for housing,’ said Brian Moran, lettings director at Your Move Scotland.
‘With the limited supply of rental properties, potential tenants have been forced to compete to secure homes, pushing up rents. The introduction of this anti-landlord legislation from Holyrood has ensured the cost of the policy has hit tenants hardest,’ he pointed out.
He also said that the rent control policy in the Scottish Government’s private tenancies bill will affect the market and not necessarily in a positive way. ‘By limiting the rent that can be charged on a property, becoming a landlord will become less appealing, limiting investment and forcing many to consider leaving the sector. This will lead to an even greater shortage of homes to rent,’ he explained.
‘In addition, without the potential incentive of higher rents, landlords will lack the motivation and finance to improve the quality of their properties. The Government needs to look at incentivising landlords to increase the supply of rental properties in Scotland. With more homes available to rent, tenants wouldn’t need to compete for properties and rents would be more affordable,’ he added.
A breakdown of the figures show that on a monthly basis, rents rose across all of Scotland’s regions in May. Glasgow and Clyde has seen the steepest uplift month on month, with rents in the region increasing 1.9% from April. This amounts to a £11 jump in cash terms, with typical rents increasing from £538 in April, up to £549 in May.
The smallest monthly upswing in rents occurred in the Highlands and Islands. Rents in the region increased by just £1. With a smaller population and fewer high paying jobs than other parts of Scotland, competition for rental properties in the region has not been as fierce.
In the South of Scotland, the increase in rents was also marginal, with only a 0.2% uptick leaving typical rents to standing at £514, the lowest average of any region.
Meanwhile, in Edinburgh and the Lothians, rents continued their upward trajectory, rising 1.7% or £11 from April, pushing the typical rent in the region to a record high of £662 per month.
The East of Scotland has seen rents increase by 1.7% or £9 month on month. This has raised the average rent in the region to £522, the highest level since November 2015.
In the longer term, rents are only higher in two of Scotland’s regions year on year. In Edinburgh and the Lothians, rents have risen by 11.6% or £69 year on year, the fastest growth on record powered by the growing proportion of higher paying jobs in the area, compared to the shortage of homes.
The South of Scotland has also seen an increase in rents over the year, with a 0.9% upswing. Average rents in the region are £4 higher than May 2015 while Glasgow and the Clyde has seen the steepest decline in rents annually. Typical rents in the region have dropped 3.2% or £17 year on year.
The index report also shows that despite subdued annual rent growth, tenant finances have not improved. Instead, Scottish tenant arrears have climbed for the third successive month.
The proportion of late rent increased to 12.5% of all rent due in May, compared to 11.6% in April. On an annual basis, tenant arrears have worsened too, with late rent standing at just 8.8% in May 2015.
‘Scottish tenants are finding it harder to pay the rent. Tenant finances improved over the winter months, but it appears spring has been a tougher test. With employment in Scotland falling by 48,000 between February and April, some tenants may be struggling to make ends meet. However, on a positive note our research shows fewer tenants are falling into serious rent arrears, where they are more than two months behind in their rent,’ said Moran.
‘With increasing costs of renting and less employment in Scotland, tenants will need additional support from landlords. But the Government’s policies are instead turning the screws on landlords; driving a wedge between them and their tenants. The Government appears to have adopted a strategy of scapegoating landlords, instead of addressing the low wage growth, limited housing supply and state of the Scottish economy,’ he added.
There has been a minor improvement in landlord finances. In the 12 months to May 2016, Scottish total annual returns stood at -2.2%. This is an improvement from the -3.5% returns over the year to April, but returns have been skewed by the new property purchase taxes. The initial Land and Buildings Transaction Tax (LBTT) introduced in April 2015 and this year’s additional surcharge have held down house prices in May.
Compared to last year, total annual returns have dropped severely, falling from 13.5% in May 2015. In absolute terms, the average Scottish landlord has seed a paper loss of £3,782 in the past year. The drop in annual returns has been caused by a fall in average house prices compared to May 2015.
The average gross yield on a buy to let property in Scotland stands at 4% in May 2016, a slight 0.1% uptick month on month. Compared to a year ago, this marks an improvement from 3.8% in May 2015.
‘With total annual returns slowly improving and gross yields also rising, landlords have enjoyed some plain sailing recently. However, the full impact of the LBTT surcharge, the reduction in mortgage tax relief and private tenancies bill are yet to be felt,’ Moran said.
‘It appears landlords may now be heading into choppier waters, with the storm of legislation heading their way. At a time when the number of people looking for homes to rent continues to rise, landlords will need to weather this tempest, if they are to meet Scotland’s housing needs,’ he concluded.
