Year on year residential rents in Scotland increased by 3.1% in June, up from the 2.7% recorded in the previous month, the latest index data shows.
This rise takes average rents to a new peak of £549 a month and June’s figure represents the fastest year on year rise since April 2014, according to the buy to let index from lettings agent Your Move.
Rents also increased month on month, up 0.8%, which was a slight slowdown from the 1% recorded in May. But in the preceding six months rents were climbing at a rate of only 0.1% per month.
The index shows that rents are hitting all-time local records in the parts of Scotland that have traditionally been more affordable to live, where rental prices are usually lower.
On an annual basis, rents have risen across all five regions of Scotland and as rent growth accelerates across the country, new price records have been set in the East, Highlands and Islands and the South.
Glasgow & Clyde have seen the biggest boost in rents year on year, with typical rental rises up 4.6% since June 2014. Rents in the Highlands and Islands have jumped 4.3% in the past twelve months, taking the average monthly rent to a record high of £563.
Similarly, rents in the East and South of Scotland have both reached a new peak following annual rent rises of 4% and 2.1% respectively. In contrast, Edinburgh and the Lothian’s has experienced the smallest yearly increase of only 0.8% but this marks an improvement from negative growth in the year to May 2015.
Rents in all five regions of Scotland are also higher month on month. The average monthly rent in the Highlands and Islands has risen at the quickest pace since May, increasing by 2.4%. Compared to the previous month, Edinburgh and the Lothian’s have seen a 1.7% rise in June. This brings the average rent in the area to £604 as it continues to be the most expensive location in Scotland to rent.
In Glasgow and Clyde rents are 0.6% higher since May, and the South has witnessed a 0.5% monthly climb in rental prices. The East of Scotland has seen a more modest 0.2% uplift in the month to June 2015, a considerable slowdown.
‘It’s not just the big urban centres of Edinburgh and Glasgow which are coming up against an urgent shortfall of housing. There is strong demand for homes to let the length and breadth of the nation, and that is underpinning this build-up in rental prices,’ said Brian Moran Your Move lettings director.
The index also shows that as of June 2015, the average gross yield on a rental listing in Scotland stands at 3.8%, on par with the previous month, but down on a year ago when gross yields were 4% in June 2014.
Taking into account listing 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 in Scotland stands was 13.8% in the 12 months to June 2015.
The report shows that this has stabilised month on month as the listing market adjusts to the implementation of the new Land and Buildings Transaction Tax but shows a considerable climb in the last year, with total annual returns at 9.5% in June 2014.
In absolute terms this means the typical Scottish landlord has seen a return, before any mortgage payments or maintenance costs, of £21,900 in the year to June 2015. Of this, rental income makes up £5,800 while capital accumulation on an average buy to let listing amounts to £16,100 in the past year.
‘Buoyant total annual returns are providing a welcome boost to landlords across Scotland and represent a nice perk above steady monthly rental income. But most importantly, rental yields are also cruising along on an even keel, and have absorbed some of the recent shockwaves of the new Land and Buildings Transaction Tax, which has disrupted the course of listing price growth more recently,’ said Moran.
But he pointed out that it remains to be seen how the recent Mini Budget will affect the rental market, particularly the change to tax relief for landlords and other policies such as wear and tear allowance for furnishing homes to let.
‘By removing some of these incentives and bonuses for landlords, the flow of investment into the private rented sector might slow down, and put extra strain on the selection of homes to let available on the market. If supply is squeezed, competition will only build up, and force faster rent rises,’ Moran explained.
‘However the move will be phased in gradually, allowing existing landlords a valuable buffer to consider the future of their portfolio and consider future investment carefully. But with rents at record levels, buy to let investment remains an exciting and attractive proposition, and the current rock bottom mortgage and interest rates will still entice further investment into the sector,’ he added.
The data report shows that the proportion of rent in arrears rose in June to 9%, up from 8.8% in May, as tenant finances worsen again. May’s level represented a small monthly improvement but the report says that this appears short lived, and the general trend is of rising tenant arrears.
A year previously, rent in arrears stood at just 6.1% of rent due in the month and tenant finances have only worsened in the last 12 months.
‘In the grand scheme of things, we’re only talking about a very small minority of the millions who rely on renting, but this can have much more severe repercussions if arrears build up month on month. Greater supply of homes to let is the only way to definitively address the housing shortage, and ease the financial pressure in the market,’ said Moran.
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Source: Property News Spain