Scotland’s private rental sector continues to go from strength to strength, with the average rental property north of the border generating strong yields for landlords, the latest data from Your Move Scotland reveals.
Rental yields in Scotland continue to compare favourably to those in England and Wales, with the average return north of the border standing at 4.7% in April, compared to 4.3%.
The only two regions south of the border to offer strong yields to rival Scotland’s were the North East (5.0%) and North West (4.8%).
Across Scotland, the average rent price increased by 1.7% in the 12 months to April, to reach £581 per month.
Rents rose in three of the five regions, led by the Highlands and Islands, where prices were up by an average of 3.6% year-on-year, to hit £688 a month.
The only area to boast higher rent prices was Edinburgh and Lothians, at £693. This followed a 3.1% increase over the year to April.
The other region to record annual rent price growth in April was the East of Scotland, at 2.1%, taking the average rent to £542 per month.
Brian Moran, the Letting Director of Your Move Scotland, says: “As we enter the summer months, we can reflect on the resilience of the Scottish rental market, which has weathered a difficult winter admirably.
“The Highlands have continued their recent trend of strong rental yields. This is fuelled in part by an influx of young professionals into Inverness, such as student doctors at Raigmore Hospital.”
He continues: “The market in this region has been further buoyed by a strong holiday lettings market, as investors and tenants, from the south of Scotland, and even England and Wales, are drawn to the beauty of the Highlands.
“Elsewhere, we have seen rising demand from tenants for two and three-bedroom homes in commuting towns such as West Lothian and South Fife, which are providing a more affordable option for growing families.”
The South of Scotland experienced an average decline of 1.2% in rents year-on-year, to hit £540 per month, while rent prices in Glasgow and Clyde dropped by a more modest 0.3%, to £586.
Your Move Scotland also recorded a decrease in the proportion of households in rent arrears during April. The 10.1% figure is lower than the 10.7% recorded in March, demonstrating an improving position among tenants.
On an absolute basis, the number of households in serious arrears – defined as two months or more – was 9,934 in April.
Rents in London are set to rise sharply over the next few months, as the supply of rental housing dwindles, while demand from tenants continues to increase, new data from Chestertons indicates.
Across London as a whole, the letting agent recorded a 24% annual rise in the number of registered tenants seeking property during the first quarter (Q1) of 2019, contrasting to a 2.4% decline in the amount of available homes.
Chestertons’ data shows that rent price growth in southwest London, in particular, is significantly outpacing the rest of the capital, as the ban on tenant fees approaches.
The Tenant Fees Act, which comes into force on 1st June 2019, will ban upfront fees and cap deposits, but Chestertons believes that renters in London are unlikely to feel the benefit, as the change follows a series of broader legislation that has pushed landlords out of the market, at a time when demand in the private rental sector is fierce.
Over recent years, the changes to buy-to-let mortgage interest tax relief and Stamp Duty on additional homes have encouraged many smaller landlords to leave the sector, which has significantly limited the choice of properties on the market for prospective tenants, causing an increase in rents.
In London, Chestertons reports that this strain is most apparent in popular southwest enclaves, which have typically been dominated by accidental landlords – those who, through circumstance, end up letting a second home.
Rents in London to Rise Sharply due to Supply-Demand Imbalance
The number of tenants registering for rental properties in Q1 has soared by 48% year-on-year in the southwest of London – the greatest increase in demand across the capital. However, the amount of available homes to rent in areas including Battersea, Clapham, Wandsworth and Putney has dropped by 30% over the same period.
This significant supply-demand imbalance in the rental market means that the southwest was the only part of London to experience a decline in new tenancies during Q1 – down by 12% annually.
By comparison, central London locations, such as Kensington, Marylebone and Notting Hill, recorded a 15% increase in lettings over the same period.
This fierce competition for limited rental housing in the southwest means that rents are climbing three times as fast in this area than elsewhere in the capital, at an average of 5.9% year-on-year in Q1. Central London recorded a 1.2% rise, while the north and east saw a 1.8% uplift.
Richard Davies, the Head of Lettings at Chestertons, says: “Renters may welcome the ban on fees, as it saves on upfront costs, but, in terms of its impact on people’s finances, it’s distracting from the bigger issues at play.
“It’s been a turbulent few years for landlords, and tenants are starting to feel the impact. With the Government’s reforms to mortgage tax relief, Stamp Duty on second homes and the recent announcement of the end of no-fault evictions, the buy-to-let market has become significantly more difficult to manoeuvre and, as a result, it’s shrunk.”
He adds: “For London’s renters, it’s tackling the shortage of available properties that will make the difference – not the overhaul in tenancy fees.”
By Matthew Tooth, the Chief Commercial Officer of LendInvest
There are many ways of buying an investment property in the UK, from a private sale through to the traditional method of using an estate agent. Among the most popular for property investors, however, is the auction. It’s been a very busy time recently for auctioneers. In April alone, there were over 100 property auctions held across the UK. Dating back to Ancient Greece, it seems nothing beats the adrenaline inducing finality of the fall of the auctioneer’s hammer.
There are several advantages of buying at auction. There’s the opportunity for a bargain, the transparency and level playing field of the bidding process, and the speed of the transaction once the hammer falls. The disadvantages lie in not always getting what you bargained for and paying over the odds by getting caught up in competitive bidding.
The risks, though, can be overcome with some proper preparation and planning.
This article will help those relatively new to the auction process with deciding on the property, preparing to bid, arranging the finance and completing on the deal.
Preparing for buying at auction
If you’ve never experienced an auction before, you should familiarise yourself with the whole process before contemplating making a bid. We suggest you find a couple of auction houses in the area that you are considering purchasing in and get on the mailing list. Their websites are likely to offer previous auction results and the prices being achieved. In this way, you will get a feel for the type of properties that come up and at what frequency.
Go and view a couple of properties that are being auctioned. Get a sense of their condition and how well they match the descriptions. Then go to watch the auction itself: see how the process works and what your test properties sell for on the day. You can repeat this process as many times as you need until you feel entirely at home in the auction environment.
Preparing to bid
Your training completed, you should now feel ready to start preparing to bid for real.
Study the catalogue and be laser focused on the types of property that appeal to you. Do your research on a property before considering bidding on it. Go and view it, get a builder, surveyor or architect to advise on the costs of development and any hidden issues, and read the legal pack. The legal pack is important, because it includes information such as searches, title deeds, leases and any relevant planning permissions. The legal packs are available online and can be downloaded free of charge.
Now would be a good time to line up your solicitor. You’re going to need to complete very quickly if you’re successful on the day, so knowing who you are going to use is one less thing to worry about, but, more importantly at this stage, your solicitor can look over the legal pack for you and point out anything that needs attention.
Take the Plunge with Buying at Auction – Getting the Basics Right
Also, think about arranging your finance, at least getting an offer in principle. You will have a legal obligation to complete on the purchase, so you need to be very confident that you have the money you need.
At LendInvest, we lend to experienced property professionals, supporting purchases with finance for auction properties from £75,000–£7.5m at a maximum loan-to-value (LTV) of 75%.
Making an offer before the auction
With the property viewed, its potential and development costs assessed, your legal team lined up and finances arranged, you could consider making an offer before the auction to get it removed from the catalogue. This happens more than you might expect and explains why you see properties listed as “withdrawn by seller” on the day.
On the day
Assuming you decide to let the property go through to auction, hopefully your preparation will now pay off. Remember that you will need a 10% deposit and two forms of ID if you make a winning bid, so make sure you bring these with you. Try and get to the auction house early, and choose a seat where you will be able to see the other bidders and also hear, and be seen by, the auctioneer.
When your chosen property comes up, always keep your budget and maximum bid in mind. If the property goes to another bidder, it goes. There will always be other opportunities.
If you do miss out, don’t make a snap decision to start bidding on another property. Remember, you did all that preparation for a reason. When you’re bidding, keep in mind that Stamp Duty and possibly VAT will be payable in addition to the bid price, as will the auction house fees.
After the auction
If you win, the property is technically yours when the hammer falls. You will need to pay the 10% deposit immediately and will typically have 28 days to complete the purchase.
You should finalise your finance and instruct your solicitor to get moving on the completion formalities. We also recommend arranging insurance, as it will be your loss if the building is damaged from this point forwards.
You will lose your deposit and the property if you don’t complete the purchase in time, and you could also be liable for the remarketing costs. The commitment you make on the day isn’t just an offer that can be withdrawn; it is binding and cannot be taken lightly.
London’s much-documented decline in popularity among property buyers and tenants has caused a shift in housing market activity in recent years. Where the capital was once king, especially for landlords, now regional cities and commuter towns have started to take its place. Birmingham, in particular, has been named a hotspot for London leavers.
However, alongside this trend, there are also a number of regional towns that have been quietly emerging as areas of increasing demand and house price growth, even in the South East, where a flailing London market currently skews average property values.
Such towns include Bicester, Bracknell and Slough – the latter of which is fast shaking off its previously dull image, to emerge as a serious contender along the Crossrail route.
All three towns have several things in common: extensive regeneration and investment projects planned and underway; lower property and rent prices than neighbouring, expensive counterparts; and considerable current and projected growth.
These areas all represent a significant change and opportunity within the UK’s diversifying property market.
Bicester
Renowned internationally for its designer shopping outlet, there’s more to this vibrant Oxfordshire market town than cut-price fashion, particularly when it comes to property.
Just 15 minutes from the centre of Oxford and around 45 minutes into central London, Bicester is a dream for commuters who like to work or play in either city. Crucially, its major benefit over both cities is its significantly more affordable property values. The average house prices in Oxford and London currently stand at £510,753 and £729,105 respectively, against a much more affordable £329,165 in Bicester.
With such high city prices now pricing out increasing numbers of buyers and tenants, nearby areas such as Bicester have begun to grow in popularity.
Bolstering this popularity, Bicester is currently enjoying millions of pounds worth of investment through its status as a garden town and Cherwell District Council’s 20-year Growing Bicester initiative, which includes the development of a ground-breaking new green village – Graven Hill – comprising a range of self-build homes and buy-to-let apartments.
Additionally, due to its location along the growth corridor between Oxford and Cambridge, Bicester has been named as one of the fastest growing economic centres in Oxfordshire. As a result, the town’s population is expected to almost double by 2032, from 30,000 to 50,000 – good news for investors.
These UK Towns are Rivalling London as Property Investment Hotspots
Bracknell
Sitting at the heart of the UK’s so-called Silicon Valley, Bracknell is also enjoying a significant amount of investment. However, the town is growing in appeal for very different reasons to Bicester. In recent years, Bracknell town centre has been completely transformed by the arrival of The Lexicon, a £240m, one-million square foot retail and leisure destination, which now boasts top retailers, including Fenwick, Waitrose, Joules, L’Occitane, and Marks and Spencer, as key tenants.
However, more impressively, Bracknell is tipped as the top centre for technology companies, as well as being home to one of the highest proportions of workers employed by the biggest companies in Britain – recorded in 2016 as 16.2%, which is double the UK average of 8.4%.
Located near Ascot and the famous Ascot Racecourse, Bracknell is also just an hour’s commute from London. However, with the average house price in Ascot sitting at £826,804 – higher than the London average – Bracknell offers an opportunity to buy at less than half the price, at £362,338.
The sentiment is being shared increasingly by developers coming into the area – SevenCapital has recently launched a new development, The Grand Exchange, within the former bus depot in the town centre, as well as a recent acquisition of a further site, One Thames Valley, which it plans to transform for residential use.
Slough
Slough has already seen significant investor interest over recent years, due to its position along the anticipated Crossrail line into central London. Already just 18 minutes direct by train into London Paddington, Slough has been named twice as a hotspot to live and work by leading UK recruitment platform Glassdoor, and recently named in the top three most popular locations for London commuters.
More than simply location, though, Slough’s appeal is building fast, due to a £1 billion, 15-year regeneration project that began in 2012, and has already delivered key commercial and community developments, such as The Curve. It’s also set to benefit from the Western Rail Access to Heathrow, which will see access to Heathrow Airport in as little as six minutes, and, importantly, from its status as a key commercial centre – the town is home to the largest concentration of global businesses in the UK outside of London, including O2 Telefonica, Ferrari and Mars.
Although house prices have already increased by more than 66% since the announcement of Crossrail in 2009, the town remains more affordable than London, with a current average property value of around £400,000.
For savvy property investors, areas such as Bicester, Bracknell and Slough all represent the new wave of UK investment hotspots that each present three significant opportunities: lower entry prices for investments; higher proportionate capital growth potential than their counterparts; and the ability to generate higher rental yields, due to the better affordability for tenants.
Andy Foote, the Director of SevenCapital, says: “We’re seeing smaller pockets of the country starting to redevelop and emerge as important commercial, retail and technology hubs, with serious potential for high, consistent growth far into the future. It’s very exciting, but, as an overseas buyer, it can be difficult to understand where these hotspots are.
“In its prime, London was easy, but, now the capital is starting to lose its appeal, having hit a peak, it seems there are many different and somewhat unexpected areas that are really starting to reap the benefits, so investors really do need to do their homework to make sure they’re investigating the best new hotspots.”
The Mayor of London must pull short-term lettings advertisements from Transport for London (TfL), calling on landlords to stop providing homes for Londoners and move into tourist lets instead, argues the Residential Landlords Association (RLA).
The organisation has expressed its support to calls for Sadiq Khan to remove the adverts by short-term lettings firm Hostmaker from the TfL network.
RLA research shows that short-term lettings have already had a significant impact on the number of homes to rent available to Londoners and has the potential to push up rent prices.
The figures show that listings on the short-term lettings site Airbnb rose by 60%, to 53,000 listings in the capital in the 12 months to 2017 alone, and the popularity of these sites shows no sign of slowing down.
Laws limit the number of days a home in London can be let on a short-term basis to 90 nights per year, to prevent properties being taken from the long-term rental market, with Airbnb making a firm commitment to enforcing these rules.
However, a recent investigation by the BBC found that Hostmaker was one of a number of companies encouraging landlords to flout these rules.
London Assembly member Tom Copley has now written to Khan, who is the Chair of the TfL, asking for the adverts to be removed, with a petition on the issue attracting more than 600 signatures.
David Smith, the Policy Director of the RLA, comments on the issue: “While people have the right to do what they want with their properties, the movement of homes from the long term to short-term lettings sector is damaging to communities and to the supply of homes to rent for ordinary Londoners.
“The sentiment of these advertisements contradicts the Mayor’s own policy on short-term lettings, and we call for their swift removal.”
The UK rent price growth rate was unchanged on a monthly basis in April, according to the latest Index of Private Housing Rental Prices (IPHRP) from the Office for National Statistics (ONS).
The average private rent price paid by a tenant in the UK increased by 1.2% in the 12 months to April, which is unchanged on March’s figure.
The UK rent price growth rate has generally slowed since the beginning of 2016, driven mainly by a slowdown in London. However, it has started to pick up since the end of 2018, due to strengthening growth in the capital.
Rent prices across the UK, excluding London, rose by an average of 1.5% in the year to April, which is unchanged on March. London’s private rents increased by an average of 0.5% over the same period, also unchanged.
In its Residential Market Survey for April, the Royal Institution of Chartered Surveyors (RICS) reported that tenant demand continued to rise gently in the month, while supply slipped further, remaining in negative territory since mid-2016.
In contrast, ARLA Propertymark’s (the Association of Residential Letting Agents) Private Rented Sector Report for March noted that the supply of rental properties rose, but agreed that demand from prospective tenants had also increased marginally.
These supply and demand pressures can take time to feed through to the IPHRP, which reflects the UK rent price growth rate for all private rental properties, rather than just newly advertised homes.
In England, private rents increased by an average of 1.2% in the 12 months to April, unchanged on March. When London is excluded from the figures, rent prices rose by an average of 1.6%.
UK Rent Price Growth Unchanged in April
Private rent prices in Wales grew by an average of 1.1% over the same period, which was also unchanged on the previous month.
The average rent in Scotland increased by 0.7% in the year to April, also unchanged. The weaker growth rate recorded in Scotland since 2016 may be due to stronger supply and lower levels of demand north of the border, according to ARLA Propertymark.
The annual rate of change for rent prices in Northern Ireland (2.0%) in December 2018 was higher than the other countries of the UK. This growth rate remained broadly consistent around 2% throughout 2018. Data for Northern Ireland has been copied forward since December 2018. The next update will be included in the ONS’ release on 19th June 2019.
Private rent prices in London rose by an average of 0.5% in the 12 months to April, which was unchanged on March, remaining at its highest annual growth rate since November 2017. The RICS reported in its Residential Market Survey for September 2018 that tenant demand had staged a sustained recovery in the capital, increasingly outstripping supply. These effects may now be starting to feed through to the IPHRP.
Focusing on the English regions, the greatest annual rent price rise in April was recorded in the East Midlands, at an average of 2.1%, which was down on the 2.3% recorded in March. Yorkshire and the Humber (1.8%) followed, unchanged on March, with the South West (1.7%) not far behind, also unchanged.
The lowest annual growth rate was seen in the North West, at an average of 0.4%, which was up from 0.3% in March.
