October 5, 2022
It’s always good to take stock, whether it’s your property portfolio or something larger, like the state of the Scottish property market as a whole.
We’re going to use this blog to do just that, as the world has seen many changes in a short period of time.
Property is always seen as a ‘safe bet’ but we know that isn’t always true. After two years of global upheaval, a war in Europe and soaring energy and living costs, how has the property market held up?
Let’s find out!
What’s been happening?
Quite frankly there has been a lot happening as alluded to above. Some of this is relevant to the rental and property markets, some of it less so.
Soaring energy costs, in large part blamed on the war in Ukraine, are undoubtedly causing great concern. Similarly, rising prices and climbing inflation have been grabbing the headlines of late.
Less tangibly, there was a hiatus for several weeks as the Conservative Party leadership, and therefore the post of Prime Minister, was decided. The resulting uncertainty was unwelcome during a period of economic difficulty within the UK.
This situation has now been resolved, and Liz Truss has made no secret of her desire to be a tax-cutting friend of business. The Chancellor’s ‘mini-budget’ on Friday 23rd September made significant immediate tax changes (including amendments to Stamp Duty in England and Northern Ireland) which caused a week of financial turmoil for the UK economy.
The impact of the mini-budget was felt in the mortgage market as the number of buy-to-let mortgage products available fell sharply.
The Guardian reported the number of new buy-to-let mortgage deals available had plummeted by 55% in less than a week as lenders frantically pulled products and in many cases increased prices.
Hopefully, the Chancellor’s u-turn on scraping the 45p rate of income tax for high earners will have a positive impact on the markets.
Landlords in Scotland have been impacted by the Scottish Government’s announcement of a Rent Freeze and winter eviction ban as part of their ‘Program for Government’. Click on the link to read more about the freeze, the winter eviction ban and related changes.
It’s worth noting that at present these temporary changes are proposed for only six months, although the Scottish Government left the door open to extend it. It’s also part of a wider range of steps aiming to help tenants.
Another change which will affect the property market in 2022 is the introduction of restrictions on short-term lets (STL). Edinburgh was the first Scottish city to introduce the change which requires owners to apply for change of use planning permission.
As explained to ‘The National’ newspaper, the change was intended to give local authorities additional control over the proliferation of short-term lets and to use these powers to better balance the mix of STL, residential, and rental properties.
How will all this affect the market?
Although we have checked the batteries, our crystal ball still seems to be malfunctioning! Seriously though – we are able to draw reasonable conclusions from what we know and from what has happened to the market in the past.
As many of you will appreciate, this is not the first time that Scotland and the rest of the UK has faced difficult financial times. There have been several significant economic and political changes over the last 30 years, however the property market has generally ridden them out well.
There is good reason to expect that this is likely to be the outcome again. As Andrew Jack at Belvoir! commented regarding the Edinburgh property market in March this year, it’s not all doom and gloom.
His observations on the percentage of average salary being spent on rent and mortgages make interesting reading, although ‘average’ is the key word here – some tenants and landlords will undoubtedly find the going tough.
The shortfall in supply has been a persistent factor in the UK property market, driving up the price of second hand homes and rental properties, and while efforts are being made to address it, we don’t expect them to affect the market in the short term.
It’s salutary to look back at the predictions featured in our ‘Scottish Property Investment in 2022: Predictions from 12 of the Top Property Experts’ blog from less than a year ago.
It’s not a case of calling anyone out for being wrong, more that some things have changed much faster than expected -in particular the Bank of England base rate currently standing at 2.25% and possibly set to rise further in the near future.
Where are we now?
It is understandable that many have been predicting burst bubbles and contractions across the entire property sector in 2022 but that doesn’t seem to be happening. Despite the challenges, the sector is in rude health.
The changes affecting the short-term let market may release properties onto the sales or long-term lettings market as some current landlords decide to quit the holiday let market.
Whether the numbers of properties released will have a significant effect on those sectors waits to be seen.
Supply and demand will continue to drive the market, both for rental properties and residential sales.
Scottish Government figures suggest that new build completions are lower than the same period in 2019, although that can almost certainly be accounted for by the COVID pandemic.
Interestingly, Build to rent properties (BTR) do not appear to have contributed significantly to the Edinburgh or Glasgow rental markets so far despite a certain amount of hype around them. The key word below is ‘pipeline’.
According to BTR News, “Scotland shows a rise in the number of operating and pipeline Build to Rent homes to over 13,000 homes, up 25% in a year. Glasgow has experienced the greatest rise with approximately 7,400 homes.”
‘Edinburgh follows with around 4,300 and Aberdeen currently has 1,100 BTR homes in the pipeline’.
“Homes for Scotland has estimated the need for 25,000 new homes a year across all tenures to meet current demand – the current ten year average is 17,000.”
“However, the Scottish Government’s rent freeze announcement is expected to dampen investor interest in Scotland and lead to the postponement of new units for rent.” Learn more in our blog ‘What is Build-to-rent and why should you care’
Changes in legislation are an occupational hazard, however the private rented sector in Scotland currently accounts for nearly one quarter of all households in the country which should allow the sector to ensure proper representation.
It’s also the case that yields from rental properties are holding up. While the prevailing economic conditions can make life difficult, the disparity between supply and demand of properties will keep prices buoyant for the foreseeable future.
Advice from the property pros
As Mark Twain famously said, “The reports of my death are greatly exaggerated” – and this is true of suggestions that the property and rental markets are teetering on the edge of an abyss.
It’s understandable that after the exceptional buoyancy of the market there is an expectation in some quarters that there has to be a retrenchment, and this combined with the cost of living crisis has led to some questionable conclusions.
The market however seems to have ignored these predictions. Experience and metrics all point to continuing growth and expansion within the private rental sector. Yields are holding or rising, demand remains high and time-to-let is shortening.
All this suggests that the buy-to-let market is still an attractive investment opportunity. We would always suggest that you do your homework and carefully consider your attitude to risk.
You may find that slower, steadier investments are better suited, and that’s fine, especially as we see interest rate rises.
The Scottish Government’s rent freeze, if limited to six months, may pass many landlords by, depending on their rental review period, however if extended it may start to affect the sector more noticeably.
We also wait to see what other changes in terms of tenants rights are going to be put before Parliament in Edinburgh, and whether these will impact landlords investments.
The bottom line from our perspective is that the property market in 2022 is still healthy and very active, representing a continuing, attractive investment opportunity.
The buy to let market continues to be an excellent investment for those willing to accept an element of risk. There is no reduction in the requirement for rented accommodation, and supply struggles to keep up with demand.
In summary…
Hopefully this blog has provided sufficient information to help you understand what the market is doing in Scotland, we’ll completely understand if you feel there is more than enough information here!
If you’d like to sit down and discuss the property market and the opportunities for landlords with us, get in touch! We spend our days immersed in all of this – to those of you who don’t it must seem overwhelming!
We are always happy to share our knowledge and perspectives and to offer advice on the property market, landlord portfolios and individual properties. The property investment market is a big place, we’ll help break it down for you.
Written by Chris Wood (MD & Founder) and Ross MacDonald (Director of Sales & Co-founder).
Get in touch on 0333 344 2855 or email us at [email protected]
Dear sir,
I think there needs to be more comment about the likely actions of the SNP government in relation to a more than likely extension of the rent freeze for a further 12 months and thereafter rent controls to stop sudden rent increases. In addition it will be combined with a move to legislate to have private rental property conform to a minimum energy bad efficiency of category C. Given the Scottish average is D costs will be very high to achieve this and likely not recoverable from rental income. In addition mortgage providers will only lend on properties with a C catagory or above this means many Landlords with buy to let property with a band D will not be able to secure a mortgage and be forced to sell.
Hi Graeme, many thanks for your comment. The Cost of Living (Tenant Protection) (Scotland) Bill provides the Scottish Government with the power to maintain or vary the rent cap over two further six-month periods once the initial period ends on 31st March 2023. So, it's possible a rent cap might be with us in some form until 2024. The Scottish Government hasn't yet confirmed a date for introducing a minimum EPC rating for rental properties. It's expected all rental properties will soon have to be EPC rating of Band C, there might be some exceptions depending on the type of property. I would suggest landlords should now look at their EPC rating and price up the necessary works required to secure a Band C. Just another hoop for a landlord to jump through! Ross.