Rent Rises? 1st May 2016
The latest research from Homelet reveals that new tenants in Scotland have had the highest percentage rental increases in Britain, with the exception of London, over the first 3 months of 2016, with an increase of 7.3% compared to the same period last year. Average rents in Scotland sit at £677 per month. The increase is clearly significantly ahead of inflation, and makes Scotland one of the most expensive places to rent in Europe. Edinburgh continues to fly with rents peaking at £644, up from £598 in February 2015.
The figures are reflective of the demand/supply imbalance, as Scotland continues to be gripped by a housing crisis. Demand for rental properties is still on the rise and not enough homes are being built – approximately 30,000 new builds a year are needed (last year only 16,270 properties were built in Scotland). And there are calls ahead of May’s elections for more affordable homes to be built to house the 150,000 families on council waiting lists. It is unlikely any of this will happen anytime soon.
There are predictions that rents could start to rise again, as new landlords and investors have to swallow the additional 3% Land and Buildings Transaction Tax. There are also additional implications for landlords with forthcoming changes to mortgage relief, the end of the wear and tear allowance, and changes to the new Private Tenancies Bill which may carry their own impact.
Furthermore, as mentioned in last month’s newsletter, Scotland is facing a possible exodus of current landlords due to fear caused by bad publicity which will in turn result in further diminished supply of rental housing stock, making things more profitable for those who choose to stay in the game.
A recent report by Paragon Mortgages has revealed that landlords are considering shifting away from buying new properties, and instead are moving towards upgrading existing portfolios. This coincides with a rising awareness of the implications of the tax relief changes. If this is indeed the case, then it clearly follows that upgraded properties may well achieve a higher rent within a competitive market place.
There is no getting away from the fact that all of the above changes will impact tenants. Almost inevitably rents will rise to compensate for increased landlord costs, and as a direct result of the lack of supply in the market place. Although the changes are coming, the buy to let market will adapt to the change.