SCOTLAND'S buy-to-let property market is caught up in a "phoney war" in which it is difficult to predict which way it will move next, according to Brian Adair, chairman of the Association of Residential Lettings Agents Scotland.
He says: "We seem
to be in the no man's land of a phoney war. Buy-to-let landlords rely on rising prices to make good returns and there is little sign of that at the moment. It's anyone's guess when they might start to go up again."
His comments come as the Royal Institution of Chartered Surveyors (RICS) reports that demand for properties to rent continues to grow, while landlords are unable to sell.
According to RICS, only 2% of landlords sold units when their leases came to an end in July, the lowest on record. This is leading to new landlord instructions outstripping new demand for property.
Adair, who also runs Ryden Lettings Scotland, agrees: "We had quite a few owners earlier in the year who took properties away from us and tried to sell. Either they couldn't get the price they wanted or couldn't sell, because many of them came back to us to re-rent.
"The good news is that we were able to increase the rent by 10% to 15% because the demand is there. The truth is it is cheaper to rent, and although you don't have the security and you miss out on rising prices, right now we are in a downturn, so renting makes sense for many people."
For example, Adair says he has a property on his books which costs between £1.5m and £2m, and could cost up to £90,000 annually in mortgage repayments before thinking about maintenance costs. Yet he is renting it for £2,000 a month.
The strong demand from tenants, combined with rising rents and falling property prices, is pushing up buy-to-let rental yields, even though the surge of property coming onto the market allows tenants to be choosy.
Sarah Speirs, of RICS Scotland, said: "With more rental choice than ever before, discerning tenants are shopping around for the best property at the best price, and existing tenants are choosing to renew their leases."
This boost in supply will be welcomed by the thousands of students currently looking for accommodation, who face eye-watering rental bills.
While high house prices in many Scottish cities push the return to buy-to-let investors below that of other popular academic destinations, particularly in the north of England, students north of the border pay among the highest rents in the UK.
Students in both Edinburgh and Glasgow face a typical annual rent of more than £10,900 – a total cost based on three students sharing – compared with the average student accommodation cost of £9,685, according to analysis of the 50 largest student populations in the UK by Paragon Mortgages.
This is lower than the annual typical cost of student accommodation in Durham (for three students sharing) at £10,444, Oxford of £11,654, or Cambridge of £12,944.
Yet it is higher even than University College London, where rents average just £8,589.
If mum and dad are feeling generous and want to buy a student bolthole for their offspring, Glasgow currently gives the best return in Scotland with a rental yield of 7.9%. Higher property prices mean that in Edinburgh and Aberdeen rental yields are only around 5.3%
If maximising your investment is the top priority, it may be worth buying a student property in another location with lower purchase costs and higher rents to subsidise the family's academic costs.
The secret to a good rental yield on student property is the numbers of students competing for accommodation in a city, combined with rent levels against property prices. However, areas with attractive yields may not also offer the best prospects for capital gains.
Top of the league comes Durham, which admittedly has a smallish student population, with only 17,410 students, yet generates an average yield of 13.94%. This is largely because property prices are modest but rents are high.
That is followed closely by Nottingham (13.56%), which has two universities – Nottingham Trent and the University of Nottingham – and nearly 60,000 students.
Popular north-west of England universities are also generating strong returns for investors, with Liverpool (9.13%) and Manchester (11.59%) benefiting from strong demand from students and good supply of terrace-based student property.
Oxford and Cambridge appear towards the bottom of the property return table due to high property prices in these areas. London's surrounding areas Kingston Upon Thames (4.45%) and Guildford (4.79%), home to the University of Surrey, also perform less well.
The average university property yields 7.17%, beating the average UK yield, which, according to Paragon's Buy-to-Let Index, was 6.4% in June.
If you are considering renting to students, you must also allow for the costs of upgrading the property to meet the Government's multiple occupancy property rules, which can require the installation of additional bathrooms and fire doors.
The full article contains 875 words and appears in Scotland On Sunday newspaper.
