UK
news.scotsman.com
Empty flats spell the end of the buy-to-let boom
Angie Brown
It seemed like such easy money. Take a mortgage out on a property, cover the costs by letting it out and enjoy the whopping capital growth of the hottest property market in the country. But now, for some, the buy-to-let dream is turning into something of a nightmare.
An increasing number of flats lie empty in Edinburgh and letting agents are trying ever more creative ways to get tenants.
David Alexander, owner of rental agency, Alexanders, which is based in Dundas Street is offering free healthclub membership with new leases in a bid to fill dozens of empty flats.
It is a high stakes business as it only takes a few months without rental income and a couple of increases in interest rates for the financial juggling act of some buy-to-let owners, who haven’t got a enough money to cover such eventualities, to come tumbling down.
In more than 20 years I have never known such a surplus of properties in relation to the level of demand
Alexander, who has 124 empty flats across the city, said: "Quite simply, it’s the age-old issue of supply and demand; there are seriously more properties available in Edinburgh than there are people to rent them and in such a business climate this agency needs has to be proactive on behalf of its landlord clients.
"Thankfully, many of our owners have agreed to become involved in the promotion as they realise that a bit of innovative thinking helps let property in an oversupplied market.
"We felt this was a most appropriate marketing strategy given the time of year. January and February are the months when many people start thinking about getting back in shape and we believe that free membership of a health club is likely to prove a very attractive incentive - especially as there is a lot less disposable income around in the aftermath of the festive season," says Alexander.
"In more than 20 years of doing business renting out houses and flats in Edinburgh, I have never known such a surplus of properties in relation to the current level of demand."
The compensation, says Alexander, is that while rental income for investors may have dropped in Edinburgh, capital growth for residential property has surged ahead, fuelled by low interest rates and demand.
Simon Fairclough, ESPC marketing director, said: "We’ve seen properties sold lottery style, cash back deals and a range of free appliances offered so we should not be surprised to see new innovative ideas like this one popping up.
"Under any market conditions it sometimes takes that little bit extra."
All of which suggests Edinburgh is set to lose out to Glasgow in the property stakes as the letting market cools down. Shrewd investors are snapping up cheaper buy-to-let flats in Glasgow, which in many cases are offering greater returns.
The move has been sparked by an oversupply of flats for rent in Edinburgh. With the buy-to-let sector continuing to expand rapidly, a growing number of properties are competing for a static number of tenants.
The trend is confirmed by figures released by UCB Home Loans, a subsidiary of Nationwide. It says that for £100,000 in Edinburgh, investors can receive between £400-£500 per month in rent. But just £80,000 in Glasgow could buy a two-bedroom flat in the south side which would bring in £500-£600 per month in rent.
A spokesman for UCB Home Loans said last month: "Buy-to-let in Scotland remains a reasonably buoyant investment vehicle and is still attracting many new investors. However, just as in England, it is the Capital that is starting to cool off first and a lot of landlords are now purchasing in Glasgow and moving away from Edinburgh."
Fairclough says investors are increasingly looking to Glasgow for higher returns. "Yields are down in Edinburgh. What investors are looking for are the long term prospects. People, not surprisingly, will be looking to Glasgow for the short to medium term."
He added that Edinburgh would remain a top performer over the long term because of factors such as the Scottish Parliament and the burgeoning financial sector.
Despite more attention on Glasgow, there is still a deal of interest in Edinburgh because of its long-term prospects.
"Edinburgh has enjoyed phenomenal growth over all property types across all areas. Accompanying that rise has been a surge in interest in the buy-to-let market, which is also cyclical. We anticipated that Edinburgh’s rate of price inflation will begin to fall."
He adds that it is crucial for Scotland’s economy that other centres such as Glasgow also enjoy the returns of the property boom: "We are delighted to see Glasgow is closing the gap."
Earlier this month, it was revealed house prices in Scotland have increased by nearly 40 per cent during the last three years, underlining the strength of the Scottish housing market. Despite the rapid increase, Scotland has still got the most affordable housing in the UK. The average house price in Scotland now stands at 3.3 times average earnings, compared to five for the UK as a whole.
House prices remain highest in Edinburgh with an average property price of £164,891 - 20 per cent higher than a year ago and well ahead of the UK average of £139,716. |
