Rents to continue to rise, as supply of new property to let drops again across Scotland

Latest figures have revealed a continuing shift in Scotland’s Buy-to-Let market in the wake of tax changes which are still in the process of being implemented, as smaller scale landlords exit the sector, the Royal Institute of Chartered Surveyors has reported.

The most striking feature of the July 2018 RICS Residential Market Survey is the continued reduction of new property being put on the market in the lettings sector across Scotland, with a net balance of 10 per cent more respondents seeing a fall rather than rise in New Landlord Instructions.

This is the tenth consecutive quarter in which this indicator has recorded a negative number in Scotland.

Significantly, the drop in instructions is evident in virtually all parts of the UK to a greater or lesser extent.

While the supply of fresh rental stock to the market is increasingly constrained, the Tenant Demand indicator remains resilient. The upward momentum remained steady, as the number of tenants looking for a new home in Scotland increased during Q2 2018, with a net balance of 27 per cent more chartered surveyors reporting a rise in tenant demand.

One consequence of this imbalance is that expectations for rental growth, and rising rents for consumers, appear to be strengthening again. Over the next twelve months, rents are projected to increase by a little short of +2 per cent throughout the UK. In the shorter term, 42 per cent of respondents expect rents to rise in Scotland over the next three months (net balance).

Turning to Scottish sales, and July also saw a drop in new instructions, with a net balance of 37 per cent more chartered surveyors reporting a decline in new properties coming on to the market. With demand remaining steady, price expectations were firm, with 49 per cent of respondents expecting prices to rise in the next three months (net balance). Meanwhile, the Newly Agreed Sales net balance remained close to zero for the fourth month in succession across the UK. As we have highlighted previously, the feedback to the RICS survey continues to suggest a stronger market in Scotland, Northern Ireland, much of the north of England, the Midlands and Wales (prices and activity).

Ian Morton MRICS, St Andrews, Bradburne & Co, said: “A lack of properties coming to the market for sale. Closing dates for offers are becoming more common due to lack of stock.”

Simon Rubinsohn, RICS chief economist, said: “The impact of recent and ongoing tax changes is clearly having a material impact on the Buy-to-Let sector as intended. The risk, as we have highlighted previously, is that a reduced pipeline of supply will gradually feed through into higher rents in the absence of either a significant uplift in the Build to Rent programme or government funded social housing. At the present time, there is little evidence that either is likely to make up the shortfall. This augers ill for those many households for whom owner occupation is either out of reach financially or just not a suitable tenure.”