Adrian Sangster, Leasing Director, Aberdein Considine, discusses the result of the European Union (EU) referendum and the possible impact it could have on the private rented market.
Landlords in Edinburgh, the Lothians and across the country will be wondering what they should do, if anything, after the UK voted to leave the EU.
This result and a change in Government, coupled with Nicola Sturgeon’s statement that another referendum on Scottish independence is back on the table has created turmoil in the financial markets and uncertainty around what will happen next.
Scottish landlords are still recovering from a triple whammy of changes to the taxation regulations brought about by John Swinney increasing the Land and Buildings Transaction Tax for second homes and George Osborne’s decision to cut mortgage tax relief and replacing the 10% wear and tear allowance with tax relief for costs they incur for replacing furnishings.
In addition to the changes to Tax, landlords are also having to deal with lenders who are (and were already doing so prior to the vote) setting tighter lending criteria for buy-to-let mortgages.
However, I do not necessarily believe that the recent vote should result in considerable and lasting damage to landlords in the private rented sector.
There is no doubt that Brexit has created a feeling of uneasiness and the immediate impact of the result was tumultuous. However, in my 26 years working in Scotland’s lettings industry I’ve seen difficult and uncertain times before.
From the UK leaving the Exchange Rate Mechanism (ERM) in 1992, the banking crisis and global recession in 2008 to the independence referendum in 2014, the Scottish private rented sector has proved time and again to be resilient, able to adapt, evolve and often thrive in challenging times.
Ironically, it’s during these previous periods of uncertainly that I’ve witnessed first hand lettings business increase as investors grow nervous of financial markets and turn to bricks and mortar, viewing it as a less risky haven for their hard earned cash. I’ve also found that tenant enquiries tend to increase as people look to make short term arrangements rather than commit themselves to a 20+ year mortgage etc.
Therefore, my message to Edinburgh and Lothian landlords is, as Corporal Jones would say, don’t panic!
The steadying and reassuring words from the Governor of the Bank of England that they have extensive contingency plans in place coupled with more positive news that UK shares and the Pound are regaining some of the ground lost in the wake of the vote should encourage landlords not to make any knee-jerk decisions.
Yes, there is change and yes, the outcome is still uncertain, but I am confident the Scottish private rented sector will do what it has done before and ride the storm to come out just as strong, if not stronger, on the other side – how long that storm may last, however, is the great unknown.
Steady growth for Edinburgh's private rented sector
Rental trends observed in the Q2 2016 Citylets Quarterly Report have been amongst the most consistent ever recorded. The Scottish Private Rented Sector (PRS) on the whole continued to rise at its current rate of 2% year on year (YOY) growth to stand at £777 per month on average. Strong competing forces in Scotland's main cities continue to battle it out with the net result of modest growth at national level.
The Edinburgh market, however, edges ever upwards towards the £1000 average mark at the same rate recorded over the last few quarters of around 6%. The average rental in the capital is now £986 per month with 70% of stock let within a month.
It has been the ever popular one bed properties rising fastest at a full 8.7% YOY to stand at £686 on average and with 34% coming off the market within 1 week.
Whilst there may be uncertainty all about, this is not the case for trends in the Edinburgh rental market which is good news for landlords but increasingly bad news for tenants. Rents in Edinburgh have risen just under 7% per year over the last 3 years and c5.5% over the last 5.
Citylets continues to expect upward pressure on rents in Edinburgh to surpass the £1000 per month average by the end of 2016.