The average rent of newly listed homes across Scotland has increased sharply in the past year, according to research by property firm Rettie.
“As of Q3 2023, Citylets is reporting the average advertised rent in Scotland at £1,115pcm, with rents of £1,208pcm in Glasgow and £1,546pcm in Edinburgh – annual increases of 14%, 16% and 17%respectively,” said Rettie.
“This pressure on the rental sector is largely due to a demand/supply imbalance.
“Analysis of new listings coming to the market shows that, over the past couple of years, new supply has contracted by around 7%, while demand within the market has continued to rise.
“The number of tenant applications received by Rettie is at around 1.6 times 2021 levels, down from a peak of 1.8 earlier this year.
“By contrast, new listings are currently at 0.9 of 2021 levels.”
Rettie said the current imbalance is reflected not only in rising rents but also in the time it takes to let a property (TTL).
Having historically averaged between 30 to 40 days, the average TTL in Scotland is now down to 18 days, with TTL in the major cities even lower.
On the Scottish housing sales market, Rettie said: “This time last year, the housing market and wider economy had been thrown into turmoil by the UK Government’s Autumn Mini-Budget, with the mortgage payment on the average Scottish house purchase increasing by almost 60%.
“A year on, while the cost of borrowing remains relatively high, transactions and house prices have remained relatively robust, although transactions look like ending close to 10% down on 2022 levels.”
For 2024, Rettie is forecasting a rise in the average house price in Scotland of 1.5% and a rise in sales transactions of over 4% as the market adjusts to its new environment.
Rettie added: “Despite the increase in the cost of new mortgages, average house prices have remained relatively robust in the past year, supported by tighter supply.
“Latest figures for October 2023 show the average Scottish house price down 1.5% on the same month last year.
“However, the average house price over Jan-Oct 2023 remains 1% up when compared to the first 10 months of 2022 …
“The new build market has been more severely impacted, with sales down 15% in the first 10 months of 2023.
“As well as the reduction in demand, the new build sector has also faced supply-side problems with rising construction costs and labour market and supply chain pressures. All of this has impacted on the viability of development in many areas, slowing delivery.
“Although transactions have fallen, we seem to be gradually moving back to pre-pandemic patternsdespite the economic upheaval of the last year or so.
“There are some positive signs emerging around future sales expectations, consumer confidence and mortgage lending, which point towards stabilising and improving market conditions as we enter 2024.
“However, the challenges of above target inflation, relatively high interest rates and a cost-of-living crisis remain for many.”
In its forecast, Rettie said: “While mortgage rates have been coming down, they will remain above historic levels for a time, exerting continued downward pressure on the overall average price across Scotland.
“In saying this, properties are still coming to market and there remains active demand, although not at the levels seen over 2021 to mid-2022.
“In our central forecast, we expect average prices to rise fractionally next year, by around 1.5%, before moving back closer to the long-term trend (of around 4%) in subsequent years if the economy recovers as anticipated.
“It will take time for the whole market to adjust to higher interest rates, as people gradually come off fixed term deals, which will probably lead to average house price growth at reduced levels for a time.
“We also anticipate that sales activity will stabilise and start to recover. Transactions look like being around 94,000 for 2023 and we believe that they will be maintaining around the 100,000 level for the next few years.
“For buyers and sellers alike, this stabilisation in market conditions will give some confidence to enter the market.
“This will vary across geographies and property types.
“In terms of the rental market, with the cost of the average mortgage currently more than the average advertised rent, there is likely to be continued pressure on the private rented sector (PRS) as demand has not dampened in the way it has in the sales market.”