Under embargo until 00:01 Wednesday 29th April 2015

March 2015

 

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Scottish Landlords see record returns • Landlords’ total annual returns hit record high of 9.7% in March 2015, amounting to £15,000 on average

• Rent rises accelerate again – annual rent growth increases to 1.3% in March, up from 1.1% in February

• Average monthly rents in Scotland now stand at £539, 30% lower than typical rent in England & Wales

• Tenant arrears continue to worsen, with late rent rising to 8.6% in March 2015 from 7.2% a year ago

Total annual returns on rental properties in Scotland reached the highest level on record in March 2015, according to the latest Scotland Buy-to-Let Index from Your Move, one of Scotland’s largest lettings agent networks.

Scottish landlords have seen total annual returns of 9.7% on average in the twelve months to March 2015, up from 7.2% a year ago. This is equal to £15,000 per property before any mortgage payments or maintenance costs, but taking into account property price growth and void periods between tenants. Buy-to-let investors in Edinburgh have experienced the strongest annual returns in the last year of 13.4% - equivalent to £27,135 in cash terms.

This comes as rent rises start to pick up again after a previous slowdown in annual growth. The average residential rent in Scotland has risen 1.3% in the year to March 2015 – up from a 1.1% annual rise experienced in February 2015. This takes the average monthly rent across Scotland to £539 as of March 2015.

Despite an uplift in growth, Scottish prices are 30% lower than typical rents south of the border, with the latest England & Wales Buy-to-Let Index from Your Move and Reeds Rains reporting that rents in the rest of the UK currently stand at £768 per month.

In the month to March, Scottish rents increased 0.3% overall – the strongest monthly uptick witnessed since October 2014, after a winter downtrend.

Brian Moran, area lettings director at Your Move,

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comments: “Despite surging demand for homes in the private rented sector, Scottish rents have been treading water in recent months, allowing tenants some valuable breathing space over the winter. Now we’re starting to see growth scale up again in the spring, as the rental cycle starts to gain momentum. But even this is still at very modest levels compared to the rest of the UK – with rents rising at less than half the pace as being seen in England and Wales. “The solidity of the Scottish lettings market is translating into a rise in the fortunes of landlords – who will have plenty of cause for cheer looking back at their returns in the past year. Particularly with signs that rent growth is amplifying once again, the reasons to invest in buy-to-let are being heard loud and clear. As more and more landlords join the party, the greater choice of rental homes on the market will ensure that rent inflation doesn’t get too deafening for tenants.”

Rents by region

On an annual basis, rents have risen across three of five regions in Scotland. In Glasgow & Clyde, rents have seen the biggest increase over the past twelve months, with rents now 3.6% or £19 higher than in March 2014. Edinburgh & the Lothians have experienced a 2.3% jump in rent prices year-on-year, and the East rounds off the trio with a more modest 0.8% annual rise in rents.

Rents have fallen across two regions of Scotland in the last year. The Highlands & Islands witnessed the most significant annual drop, with rents falling 1.9% (equivalent to £11) in the year to March 2015. In the South of Scotland, rents are now 0.1% lower than a year ago.

Compared to last month, rents are higher in only two of five Scottish regions. Rents in the South of Scotland saw the biggest monthly uplift in March, but still have the cheapest monthly rents across the country, at £489. Rents in this area have climbed 1.8% (equal to £9) since February 2015, as rent growth starts to get back into its stride a long spell of price drops in the latter half of 2014. The only other location to experience a boost in rents in the past month was Glasgow & Clyde, with rents rising 0.3% during March.

The majority of regions have witnessed a fall in rents month-on-month. The steepest drop in rents was in the Highlands and Islands, down 0.6% since February. Edinburgh & the Lothians experienced a 0.5% monthly fall in rents, while prices in the East dipped 0.2% in the month to March 2015.

Monthly rents in March: By region

 

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Landlord Returns and Yields

Taking into account rising property price growth and void periods between tenants, the average total annual return on a rental property in Scotland is 9.7% in the twelve months to March 2015. This represents a steady uplift from 9.6% last month, and a bigger jump from 7.2% a year ago, as we experience an uptick in house price growth ahead of the introduction of the new transaction tax.

In absolute terms this means the average landlord in Scotland has seen a return, before any mortgage payments or maintenance costs, of £15,031 in the year to March 2015. This is made up of £5,839 of rental income and £9,192 of capital gains.

If rental properties continue to rise in value at the same fast rate as witnessed over the past three months, the average buy-to-let investor in Scotland could expect to make an overall annual return of 17.5% in the coming year, equal to £28,864 per property. Of this, rental income would account for £5,826 while capital accumulation would total £23,037 if market trends of the past three months continue.

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As of March 2015, the average gross yield on a rental property in Scotland stands at 3.9%. This is consistent with last month, but represents a year-on-year drop from 4.1% in March 2014.

Brian Moran comments: “Landlords are seeing higher returns than ever on their buy-to-let investments, and it is capital gains that have done the majority of the legwork, as the new transaction tax has put the foot on the accelerator of property prices lately. Rent rises are strolling forward at more of a leisurely pace, ensuring tenants can sit comfortably, but gross rental yields are robustly staying the course regardless. “This presents an intoxicating mix for landlords, and competitive mortgage rates and lower duty on homes at the bottom end of the market are also enticing new investment. But it’s not just landlords who can benefit from the current lay of the land, and they often find themselves head-to-head with first-time buyers in the house purchase market. The only way out of this conundrum is to build more properties in the first place, to balance demand for housing on all fronts, and keep future rent rises affordable.” Tenant Finances

Scottish tenant arrears have continued to climb, reaching the highest proportion on record in March 2015. Rent in arrears climbed to 8.6% of all rent due in March, up from 8.1% in February. This also represents a significant worsening of the health of tenant finances on an annual basis, increasing from 6.5% in March 2014. Previously, late rent peaked at 8.5% in December 2012.

Brian Moran concludes: “When it comes to tenant finances, the picture has only got bleaker over the past two years. Many renters are still marooned under a cloud of late rent, in places where the overarching economic recovery hasn’t broken cover. The jobs market is improving – but not fast enough, and not with enough real-terms progress in salaries. To make proper financial inroads, and airlift tenants out of the red, wages have to take off.”

- ENDS –

Rents March 1 month change

Annual Change

Yields March 2015

Yields March 2014

East £529 -0.2% 0.8% 3.5% 3.7% Edinburgh & Lothians £595 -0.5% 2.3% 3.2% 3.4% Glasgow & Clyde £558 0.3% 3.6% 4.9% 5.1% Highlands & Islands £538 -0.6% -1.9% 4.1% 4.4% South £498 1.8% -0.1% 4.3% 4.4% Scotland £539 0.3% 1.3% 3.9% 4.1%

For further information please contact:

Emily Barnes, Instinctif Partners 0207 427 1403

Melanie Cowell, LSL Property Services 01904 698860

 

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METHODOLOGY:

The index is based on analysis of approximately 3,000 properties across Scotland. Rental values refer to the actual values achieved for each property when let. Gross yield figures are unadjusted, and do not take account of void periods or arrears. Annual returns are based on annual rental property price inflation and void-adjusted yield twelve months prior to the reference month. These figures are subject to revision as more data becomes available.

This Buy-to-let index has been prepared by The Wriglesworth Consultancy for Your Move, part of LSL Property Services. It has been compiled using information extracted from Your Move’s management information. The copyright and all other intellectual property rights in the Buy-to-Let Index belong to LSL. Reproduction in whole or part is not permitted unless an acknowledgement to LSL as the source is included. No modification is permitted without LSL’s prior written consent.

Whilst care is taken in the compilation of the Buy-to-Let Index, no representation or assurances are made as to its accuracy or completeness. LSL reserves the right to vary the methodology and to edit or discontinue the Buy-to-Let Index in whole or in part at any time.