News roundup – Scotland home to UK’s highest yields and BTR growth north of the border
Thu 28 May 2020
Scottish landlords are seeing higher rental yields than any other part of the UK, it was recently revealed by peer-to-peer lending platform Sourced Capital.
Landlords in Scotland are seeing the best top-line yields at present, at 5.8%, just ahead of Northern Ireland (5.4%) and comfortably ahead of England (4.1%) and Wales (3.6%).
Yields north of the border are also comfortably higher than the average UK rental yield of 4%. The report did not provide the exact timeframe of the data, but the yields at play make for positive reading for Scottish landlords, with the country being one of the UK’s best locations for property investment.
A strong rental yield – which is calculated by dividing annual rental income by the amount paid for the property – is typically the best indication of whether or not an area is worth investing in, and whether good returns can be made on investment.
“One positive that can be taken from months of stagnant house price growth brought on by Brexit uncertainty is that rental yields have seen a boost due to a fall in property values coupled with consistently high rental demand and rental prices as a result,” Stephen Moss, founder and managing director of Sourced Capital, said in the report.
He added: “We’ve already seen a Boris [Johnson]-inspired bounce late last year with early signs that the market has ‘bottomed out’ and is once again on the up already in 2020.”
As a result, he continued, there has already been an early flurry of investor activity in the first few months of this year as people realise now is a great time to get a foot in the door and ‘secure a good deal before prices do regain momentum and the returns available start to tighten’.
Scotland wasn’t just the best performer on a national level, it also reigned supreme on a more local level, too. It was home to the top five spots for potential yields, while also accounting for 14 of the top 20 areas for current returns.
The best spots for yields were found to be in, or around, Scotland’s largest cities, with Glasgow bagging top spot with rental yields of 7.8%.
Yields in Midlothian, which borders Edinburgh, currently stand at 6.9%, according to the research. Meanwhile, in East Ayrshire, south of Glasgow, they presently stand at 6.6%.
Over recent years the property sector has remained one of the best and most reliable investment avenues, regularly outperforming stocks, shares, bonds and other asset classes. And the signs are that this is set to continue, even with the challenges of Brexit, the ongoing coronavirus issue, and the continued push for a second independence referendum in Scotland. This is largely because property is seen as a safe bet in times of uncertainty, with people looking to lock in their investment in things that are likely to generate solid returns.
Elsewhere, in other positive news for Scottish landlords, a regional forecast report from global real estate firm JLL said that rental income is set to rise in all major UK cities, with expected growth of 15.4% in Edinburgh and 13.7% in Glasgow. Very often, these positive numbers spread out and feed into the surrounding areas, which is where landlords in places like West Lothian – situated halfway between Scotland’s two largest cities, and a large commuter hub for both – can benefit from this ripple effect.
Meanwhile, according to the January 2020 RICS Residential Market Survey, house price growth in Scotland outstripped all but one part of the UK last month, while the research also revealed that demand for rental properties increased in the three months to January, with a net balance of +29% of respondents citing an increase. The balance for landlord instructions also grew for the first time in 16 months, with a net balance of +6%.
Potential for huge BTR growth in Scotland
While research suggests that Scotland currently offers the best buy-to-let yields in the UK and high and consistent tenant demand, landlords north of the border could soon face increased competition from Build to Rent (BTR) developments – which are often funded by large institutional investors and have become an increasingly popular trend across Britain in recent years.
Recent research by CBRE identified Aberdeen, Edinburgh and Glasgow as being among the top UK towns and cities outside London where BTR developments could increase thanks to rising demand for private rented accommodation over the next ten years.
CBRE’s analysis highlighted three main factors that have a quantifiable impact on the private rented sector (PRS) in a given town or city - a high percentage of population aged 25 to 34, high numbers of students and the relative size of the economy. These findings were then applied to forecasts to calculate the potential change over the next decade.
At present, Build to Rent only accounts for a very small part of the UK-wide PRS – approximately 2% - and remains highly niche in Scotland. According to the British Property Federation’s Build to Rent Map of the UK, which produced by Savills and updated quarterly, Scotland is home to only two completed schemes – Forbes Place in Aberdeen and Candleriggs Court in Glasgow – with one scheme under construction in Edinburgh and a number of other schemes with planning permission in Glasgow.
But it’s still something for landlords to be aware of as a trend. There may even, as the BTR market continues to grow and expand, be opportunities for individual investors in this rapidly-evolving sector. Glasgow, in particular, has seen a major uptick in schemes receiving planning permission as BTR homes in the regions soared by more than 50% in 2019.
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