Scottish rents hit record high as LBTT surcharge bites

Rents in Scotland are at a record high, after the fastest month-on-month growth on record, according to the latest Scotland Buy-to-Let Index from Your Move, one of Scotland’s largest lettings agent networks.

Average residential rents in Scotland have shot up 1.3% from April, after the cost of the new Land and Buildings Transaction Tax (LBTT) surcharge has pushed up prices in the market.

This increase means that the average rent in Scotland now stands at £549 per month. This is the highest Scottish rents have been ever been, surpassing the previous record set in July 2015.

This month also marks five years since the Scottish National Party gained an overall majority in the Holyrood. Since then, average rents have seen a 7.9% (£40) upswing from £509 per month in May 2011.

Brian Moran, lettings director at Your Move Scotland, says: ‘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. 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.

‘Since the SNP came to power five years ago, monthly rents have increased by an average of £40. However, the rent control policy in the Scottish Government’s private tenancies bill will only treat the symptoms, not the cause of rising rents. 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. 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’.

Rents by region

On a monthly basis, rents rose across all of Scotland’s regions in May 2016.

May 2016 rents in scotland

Glasgow & 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 & 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 & the Lothians, rents continued their upward trajectory, rising 1.7% (£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% (£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 & the Lothians, rents have soared 11.6% (£69) year-on-year. This is 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.

Glasgow & the Clyde has seen the steepest decline in rents annually. Typical rents in the region have dropped 3.2% (£17) year-on-year.

Tenant arrears worsen

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.

Brian Moran says: ‘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.

‘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.’

Minor improvement in landlord finances

In the twelve 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 4.0% 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.

Brian Moran sums up: ‘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. 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.’

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Related Articles & Comments

  • The Scottish government was bounced into the LBTT surcharge by George Osborne’s announcement of a 3% surcharge on SDLT. The surcharge was the product of a disordered mind but if the Scottish Government had not followed suit Barnett Consequentials would have kicked in adversely to the Scottish Public Purse. You don’t seem to recognise the hand of Osborne in all of this either in your headline or narrative.

    The Finance Committee of the Scottish Parliament are keeping it under review and with time to reflect hopefully it will be amended.

    It only affect purchases for let and not existing letting investments so the vast bulk of properties which come up for let are no affected by the surcharge as the ownership of the properties does not change. There is no excuse for existing owners to increase their rent on the back of the surcharge or avoid improving their properties.

    If they are to sell them then the market in purchase is increasing so what they can realise on a sale to a homebuyer is likely to be greater than sold as a letting concern.

    Like or Dislike: Thumb up 0 Thumb down 2

    Graeme McCormick June 22, 2016 11:59 am Reply
  • Rent arrears will increase as Universal Credit is rolled out. Before Universal Credit housing benefit was paid directly to landlords in the social housing sector. With Universal Credit the housing benefit for social housing tenants becomes the same as for private rented sector tenants and is paid directly to the tenant. It can be paid directly to the landlord only when they are 8 weeks in arrears and there is no help for the landlord in collecting the arrears.

    Like or Dislike: Thumb up 1 Thumb down 0

    Steve June 22, 2016 9:35 pm Reply

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