Buy-to-let landlords urged to invest cash in Edinburgh & Glasgow property market to maximise yield
In his latest column for The Scotsman, David Alexander discusses how mortgage rate increases and rent caps have led to an exodus of landlords in Scotland… but according to the capital’s biggest lettings agency, investment opportunities are better than before.
Is it time for the resurrection of Buy-to-let?
Buy-to-let landlords and their tenants find themselves in a 'Catch 22' situation in recent months in Scotland, says leading property firm, DJ Alexander. While landlords' mortgages are going up by hundreds of pounds, the post-Covid rent cap imposed by the Scottish Government is still in place until 31st of March 2024. The squeeze on landlords means many are exiting the market, and the net result is there are fewer properties than ever available for would-be tenants.
According to DJ Alexander, the capital’s biggest lettings agency, even with higher-than-ever rental costs, most properties receive between 150 - 600 prospective tenant enquiries, meaning there’s a strong market for landlords.
DJ Alexander’s Sales Director, Melinda Illes, said: “People are understandably cautious about the buy-to-let mortgage market, especially since the Additional Dwelling Supplement (ADS) Tax has been increased to 6% last September in Scotland. However, for those with cash to invest, it’s a particularly good time.
“They don’t have the worries about mortgage rates, but will have the benefits of both increasing yields, and long-term capital growth.
“Our experience in the Scottish market is that house prices don’t tend to fall as drastically as other parts of the country during tough times; instead people tend to simply hold onto their properties and don’t put them up for sale. That means, the capital growth for long-term investors isn’t affected by the rollercoaster cyclical nature of the market, as they simply sit it out."
But the main benefit for landlords is the growing yield. Pre-Covid times, average yields in Edinburgh were around 4-5%, whereas now with drastically increasing rents, yields are more commonly sitting in the 6-7% range. Although landlords with current tenancies have a limitation of a maximum 3% rent increase on an annual basis, when tenants move out, the current demand often dictates as much as 20-25% increases, which can equate to hundreds of pounds in some cases.
With such a fast-moving rental market, tenants also stay longer than ever, with our current average length of tenancy at 33 months. This also provides further security for landlords with the likelihood of little to no void periods.
One of the big areas of profitability, she says, is in HMOs (House of Multiple Occupancy), which are much sought after in our student city.
Illes added: “Although there are many more purpose-built student accommodations in Edinburgh & Glasgow, we find that students would far rather house-share with friends for the full student experience. Per room rentals have increased by hundreds of pounds, due to the increasing demand, which is pushing some of the HMO yields to as high as 8-9%.
“Our opinion is that with ever increasing demand for rental properties coupled with increased rental yields, there is a real opportunity for existing or new landlords just now in our sector, particularly those with cash to invest.”
DJ Alexander, which has both a sales and lettings business, is not only seeing outstanding results for landlords, but for vendors too, with a record £15million of property sales in May to June, the biggest month in the company’s 42-year history.