December 27, 2023
We were pretty successful with our property predictions for 2023, despite the numerous challenges faced by the private rented sector (PRS) across the United kingdom.
So – the question which hangs over us is – can our friends and colleagues once again put their finger right on the beating pulse of the Scottish PRS and divine what 2024 is likely to bring us?
It’s always risky, but at least we are not alone, being able to call on professionals with specific experience and knowledge of all areas of the Scottish property sector to help us predict what 2024 is likely to bring.
Property predictions for 2024
Over the last four years the private rental sector (PRS) in Scotland has experienced a roller coaster ride, the result of not just wider economic impacts but also the unique challenges due to The Cost of Living (Tenant Protection) (Scotland) Act 2022.
The market continues to be shaped by a deep supply and demand imbalance which will be a key driver underpinning rental growth across Scotland. The scale of constricted supply means that rental inflation is likely to continue into 2024.
But this will be shaped more by questions around the affordability of renting, and how tenants adapt to increasing rents, rather than major shifts in supply and/or demand.
The rates of rent growth we are witnessing are ultimately unsustainable and questions around affordability really need to be answered.
These questions around rental affordability are what is driving further changes to legislation. The Scottish Government has committed to introducing a system of long term rent controls and additional protections for tenants.
These proposals have been viewed by many as a direct attack on the PRS in Scotland, severely impacting the ability of landlords to generate a return from their investments and have resulted in widespread concern within the PRS.
But is it all as bad as many make out? In our opinion, the majority of the proposed changes would seem to be workable as long as there are sensible protections in place for landlords.
We would like to see mechanisms in place for rent increases linked to inflation where required. Added to this there also needs to be an ability to increase rents post-improvements, so landlords remain incentivised to improve rental stock.
So, 2024 looks like being another year of significant change to the PRS in Scotland, but we remain optimistic that the sector will continue to operate and remain a place for the properly advised investor to generate a return.
Website link:Visit Glenham Property to learn more.
As we begin to close out another eventful year we start to look forward to the new year and predict what 2024 will have in store.
Looking specifically at mortgage rate expectations the question of whether or not interest rates have peaked seems to have been answered already, however what is the predicted path forward for the coming year.
In August, Huw Pill, the Bank of England’s chief economist, introduced the world to the idea of a “table mountain” rate profile, i.e. a large climb followed by a long plateau which begs the question of when we might start to descend said mountain and what at what rate.
Our view at Hansar is we expect a slow, consistent descent compared to the bumpy ride markets endured on the way up the interest-rate mountain. As it stands, markets are forecasting all three major central banks will cut three times in 2024.
Cuts are priced to continue in 2025. This will see the Fed getting to roughly 4% (current target rate 5.50%), the ECB to 2.75% (from 4%), and the BoE to 4% (from 5.25%).
The key indicator to follow will be inflation and although we have seen reasonable declines in certain parts of the inflation calculations, the battle is not yet over.
I have seen many landlords return to the market last quarter of 2023 as house prices (paying well above home report) have cooled off. This has allowed many first time buyers, landlords access the market again.
Home reports still remain strong across Central Scotland. In my view, it’s a great time to move as there is certainly less competition at present and now looks like a positive step in 2024 for rates.
Website link: Learn more about Hansar Mortgages by visiting the official site.
Rents have increased exponentially all over Scotland and I can see this continuing although not at the same dizzying rates as we have seen in 2023. It will be interesting to see what measures the government replaces the rent cap with.
I don’t think the base rate will increase any further now and some stability is helping bring down interest rates.
At the moment we have some eye-watering arrangement fees and I hope to see those reduced as well. Some are necessary to meet the lender’s rental stress tests just now, and for this reason landlords are favouring higher yielding properties.
The market has slowed down in the majority of Scotland apart from the most desirable areas, and a shortage of properties for sale is keeping prices firm but investors are starting to pick up more deals.
We have seen many landlords wanting to wait to see what happens in these uncertain times whilst others are taking advantage of this lull along with increased rental yield.
As an investor myself I haven’t bought much recently, but I have been actively growing my portfolio this year and looking to add more in 2024. Once rates drop further, the market will be more buoyant, making now an opportune time to buy.
We have seen double digit rental growth in Dundee and demand is far outstripping supply. With the Eden project on the horizon I predict the often overlooked East end will benefit greatly from this and is a place to watch.
I think the outlook for the Scottish property market is an interesting one. Clear signs of the macro economy cooling down, with consequential interest rate stagnation likely to remain, will increase demand.
On a micro level this will hopefully be met in Scotland by increased supply through a lag in long term landlords still exiting the market well into 2024, and short-term lets being offloaded in the face of the new licensing regime.
I therefore expect prices to remain positive, albeit down, from the unsustainable growth we’ve seen since COVID-19’s effect in late 2020.
Demand still outstrips supply in the rental market, and despite the rent freeze, rents have increased at a record level. Those landlords that are geared correctly are seeing a higher return on investment and are here to stay.
Higher barriers to entry caused by current interest rates mean new investment has scaled down, but I expect this gap to be filled by first time buyers and movers encouraged by stable house prices and interest rates coming down in the long term.
As always, my local market in Edinburgh still feels incredibly robust, but I appreciate this may be something of a unicorn in Scotland.
With an exceptional and continuing housing shortage across the UK,I do believe homeowners and investors alike can be encouraged by the ongoing demand for good and affordable homes, which is likely for the foreseeable future.
My prediction for 2024 is that house prices will move steadily sideways, while transaction levels will hold up. Two considerations underpin my view:
The first is that nothing can be done to alleviate the supply shortage in the short term, and second, that transactions will continue while nominal house prices are supported by sustained inflation.
In the rental market, a host of factors are generating upward pressure on prices. These include mortgage unaffordability, diminishing supply and an increasingly hostile regulatory environment for landlords.
It seems inevitable that rents will rise until people simply cannot afford to pay them.
Levels of rent arrears and homelessness will continue to rise.
Homelessness has already risen sharply across Scotland, with several council districts declaring housing emergencies as a result.
The introduction of ill-considered emergency rent controls in Scotland have resulted in runaway rent inflation, with Edinburgh recently posting the fastest year on year rent inflation of any city in the UK.
Scotland has recently posted the highest rent inflation of any region in the UK, but I feel condemned to hope.
Prior to expiry of the current emergency measures at the end of March 2024 the Scottish government have committed to putting in place some permanent rent controls.
The best that we can hope for is that they deploy something like the Rent Pressure Zone legislation which was introduced in 2016 to no effect.
Website link: Visit the official Western Lettings website.
2023 was a year that property investors began taking stock to consider the financial viability of their lettings businesses, as many continued to be dismayed by the Scottish Government’s apparent desire to drive many landlords out of the sector.
With rents rising and demand souring for homes to rent in Scotland, you could be forgiven for asking why are more people not wanting to invest and help meet the demand for housing?
With rising mortgage interest rates and other costs, often meaning that rental income no longer covers costs, landlords need reassurance that their businesses are viable and without that they will continue to sell up in droves.
Politicians need to work with landlords to find long-term, lasting solutions to the housing emergency that we are facing, acknowledging the important role private landlords play and encourage them to continue to provide much needed homes for rent.
2024 will certainly be a different year for the private landlord investor as we see an end to national restrictions on rent increases.
While this change is welcome, the prospect of future permanent rent control is inevitable as the Scottish Government plans to introduce a new Housing Bill in the first half of next year.
With all this uncertainty and market instability, one thing we can be sure about is that there will always be a future for the private rented sector as demand for housing continues to outstrip supply and renters continue to knock on our doors looking for a home.
Now more than ever the voice of private landlord investors needs to be heard and politicians need to listen.
The next year will certainly be a time for us all to adapt our lettings businesses to survive and hopefully, in time, thrive and SAL is proud to be there to help you in that journey.
Website link: Visit the Scottish Association of Landlords
2023 has been pretty steady; although rents have continued to increase with the anticipated reduced stock levels, we haven’t seen huge increases.
The exception is on properties which have become vacant and landlords have taken the opportunity to apply market- rate increases beyond the rent cap still in place in Scotland..
Stock levels on the sales side have been low – although we anticipated a surge in landlords selling – we haven’t seen a mass exodus and mortgage rates have finally calmed down.
It will be interesting to see what happens come March 2024 when the rent freeze comes to an end – will there be a small period of freedom for landlords to increase as they please?
Or will the much discussed rent caps be introduced to dovetail with the March deadline – this seems impossible given the need for consultation. Will there be more emergency legislation brought in? We continue to watch and wait.
Returns are still good if you know where to buy and can buy at the right price – but substantial cash flow from just a couple of BTLs is tricky in the current market – scale is key. Vanilla BTL remains a great long term investment.
Website link: You can view Sally’s website at SLM Property right here.
Advice from the property pros
As our friends and colleagues have stated, 2024 could be another challenging year. Supply isn’t going to increase dramatically, keeping rents relatively high as demand remains as high as ever.
In Scotland, the rent cap will end in March 2024, but the Scottish government has been speaking about further restrictions on rent increases, as mentioned by some of our contributors.
Whether that will be rent controls, more temporary legislation or something completely new, only time will tell.
Likewise, although we will most likely see a change of UK government at some point next year, there is still time for the Renters (Reform) Bill to pass through parliament and into law.
The contents and form of the Bill, when it finally does become statute, is still in the hands of Parliament which makes it difficult to plan for.
Hopefully we will see no more madness in respect of interest and mortgage rates, allowing for a period of retrenchment and modest expansion within the PRS across the UK.
In summary…
There we have it – the Scottish property predictions for 2024, straight from the professionals! Reading between the lines of our various contributors we get the sense that 2024 could be a solid year for buy-to-let and property investment in general.
Yes, there are some potential challenges lurking – both north and south of the border – but after some difficult times we are starting to see some level of economic stability in the market as interest rates find their level and inflation slows.
Market forces may make portfolio purchases more attractive as it becomes harder to realise reasonable income from a single property. New legislation we didn’t expect could lob a big, shiny spanner right into the works.
This is the joy of trying to divine the future!
Regardless, we’ll be here in 2024 to help you with your property journey, offering advice, guidance and practical assistance to get you up and running on your buy-to-let adventure.
So until then, thank you for your support through 2023 and our best wishes to you all for a very merry Christmas and a happy New Year!
Written by Chris Wood, MD & Co-founder of Portolio, and Ross MacDonald, Director of Sales & Co-founder of Portolio
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