The UK-wide rental market has had its fair share of challenges in recent years, such as the additional dwelling surcharge on stamp taxes, reduction on mortgage interest tax relief, tougher lending criteria and government regulation.

Despite these pressures, demand for rental properties across Scotland remains ever strong, with the number of households living in this sector increasing by over 200% in 20 years, from 110,000 households in 1999 to 350,000 in 2018, making up 14% of all households. An increase of 27% in the average asking price per calendar month (pcm) across Scotland over the last decade, therefore, comes as no surprise.

Edinburgh continues to grow

Edinburgh remains the most popular and valuable rental market in Scotland, with 25% of households living in this sector. The average asking price pcm reached £1,134 at the end of last year, according to Citylets. In a similar trend to the sales market, the capital faces the challenges of constrained supply and strong demand from professionals, particularly for one- and two-bedroom properties below £1,000 pcm. But there is also high demand from families for appropriately priced larger properties in good condition close to the city centre.

Impact of new tenancy system

One of the main questions we are asked in regard to the rental market is the impact of Scotland’s Private Residential Tenancy, which has been in place for over two years. In our opinion, appropriate pricing, high quality management and more awareness of associated costs have been the positives. Despite properties taking a relatively short period to rent, it is important for landlords to be aware of tenant intentions to ensure longer letting periods, minimal voids and less costs for both landlords and tenants.

Outlook

Looking ahead, pressure on private landlords will limit the supply of rental properties, thus fuelling value growth. But the proportion of household income that tenants can afford to pay as rent will be the overriding constraint on rental growth. The fundamentals supporting this, such as income and employment, will remain strong in regional city hubs such as Edinburgh. Across the UK as a whole, we expect rental prices to grow by 15.4% over the next five years, with Edinburgh likely to outperform.

_{Read the articles within Spotlight: Scotland Residential below.}