Despite the challenges faced by the private rented sector (PRS) over the past couple of years, Scotland’s largest cities appear to be bucking the trend by demonstrating very positive buy-to-let performance.
Edinburgh and Glasgow, despite the very best efforts of the Scottish Government and the wider economy, have continued to thrive. Further south, The North East of England is also bucking the perceived trends.
The most recent Colliers report into the Top Investment Cities in the UK places Edinburgh and Glasgow first and second respectively. It’s worth downloading and reading the PDF version of the report.
As professionals in the buy-to-let market we wanted to look at the numbers for these areas to see if the perception that these markets are still doing well is founded in fact. Why are they demonstrating continuing positive performance?
The state of the rental market
In order to understand the above average buy-to-let performance in Edinburgh and Glasgow, we’ll look at the most recently-available figures; this early in 2024, these are mostly from Q4 2023.
The UK economy has faced many challenges over the past few years. From the pandemic, through a dramatic interest rate rise to the continuing cost of living crisis the market has endured considerable instability.
All of this has led to much speculation about the health and future of the rented sector, much of it somewhat wide of the mark. There are areas of the UK where the market is suffering, but this is not universally the case.
Rents in Scotland
This was the situation in Scotland in Q4 2023 courtesy of Citylets. Edinburgh and Glasgow were both performing above the Scottish rental average, Edinburgh considerably so.
So, both Glasgow and Edinburgh have managed to maintain above-average rents, in large part this is probably due to the continuing disparity between supply and the demand for accommodation in these cities.
However, high rents alone cannot account for an improved buy-to-let performance, there must be other factors.
Another major consideration is house prices – with high interest rates and high prices it becomes increasingly difficult to realise a workable profit from an investment.
The following table, courtesy of Savills, neatly illustrates that property prices in Glasgow and Edinburgh are holding up better than some had expected.
Prime Scotland price movements
|Prime Edinburgh City
|Prime Edinburgh Country
|Prime Glasgow City
|Prime Glasgow Country
|Prime North East
|Prime country houses
|All prime Scotland
|Growth since March 2020
Source Savills prime regional index, Q4 2023
While prices in Edinburgh have slipped, the fall as of Q3, 2023, was nowhere near as dramatic as some forecasts had predicted earlier in the year. Indeed, the Office for National Statistic figures for Q3, 2023 confirm this trend.
They also confirm that property prices in the North East of England have enjoyed an excellent 2023 despite the understandable fears of a property-price slump.
Steady property prices cannot account for a better property investment environment, so there has to be something else at play. There is, and it directly impacts upon buy-to-let performance.
A trend which was noted in our predictions for 2024 is the tendency for buyers to make offers which are no longer well over the Home Report value. This price deflation is welcome news for those buying, whether investors or not.
Since rents have remained high, especially in Glasgow and Edinburgh, lower mortgage rates and property prices will encourage property investors looking to enter the market or to extend their current portfolio.
Falling mortgage rates
Contributing to the continuing health of the sector in Edinburgh and Glasgow is the ongoing fall in mortgage rates.
Moneyweek recently reported that some banks are now offering products with rates as low as 4%. Granted these are likely to be of limited attraction at present due to a low loan-to-value ratio, but the direction of travel is positive.
Falling inflation has emboldened the financial markets and it is to be hoped that the Bank of England will lower base rates in the foreseeable future, although they are being notably cautious at present.
Will this market strength continue?
Anyone looking for a hint of what the future holds would be well served by reading the Scottish Property Foundation’s report on the future of the private rented sector in Scotland.
While it focuses on what it sees as the future for the market, it contains a considerable amount of useful information about the PRS in Scotland, and the factors currently and likely to affect it.
Another source worth a look is the 2023 Rental Market Roundup from Rettie.
One of the highlights is the quote from Assar Lindbeck, the Swedish economist, who offered the following opinion; “In many cases rent control appears to be the most efficient technique presently known to destroy a city – except for bombing.”
Given that the shadow of rent control continues to hang over the Scottish market, many within the PRS here are waiting with some trepidation to see what transpires.
Given that the Scottish Government’s recent efforts in this area have seen record increases in rents, it is to be hoped that any further proposals are based on solid evidence and proper consultation with the PRS itself.
Advice from the property pros
At a time of economic uncertainty, with depressingly doom-laden news coverage, it’s reassuring to see that some sectors of the PRS are still thriving. It’s critical that they continue to do so.
The private rented sector provides a significant percentage of homes for the citizens of the UK and there is no successor waiting in the wings should economic forces or government hubris force it out of existence.
The fact that property sales in both Edinburgh and Glasgow are happening at a more realistic level will encourage property investors to consider purchasing more properties for rent.
Falling mortgage rates will make it more attractive to invest, and high rents offer the prospect of realising income from those investments. Whether the current rental rates are sustainable is a whole other subject.
For landlords and investors, Edinburgh, Glasgow and the North East of England are a beacon of hope in the middle of some difficult times.
The PRS is still some way from a guaranteed future and calm sailing, but there are signs that it can, and will, get there in terms of buy-to-let performance.
From our perspective, the continuing health of the market in Edinburgh and Glasgow gives us hope that the PRS will weather its current travails and whatever the Scottish Government comes up with next.
There is still money to be made in buy to let, don’t think otherwise, but if you’re considering investing in property, drop us an email or pick up the phone and let’s discuss what approach best suits you.
Written by Ross MacDonald, Director of Sales & Cofounder of Portolio
Get in touch on 07388 361 564 or email to firstname.lastname@example.org