Rental boom – even for reluctant landlords

Published on Friday 17 October 2008 22:42

PROPERTY investors and landlords are enjoying an "unprecedented" boom as Scotland's rental sector benefits from the slump in the housing market, according Citylets, the property rental website.

But Trends in Scottish Residential Lettings, the latest Citylets quarterly report, also offered a strong note of caution that the good times for the rental market – particularly the surge in rent levels – may come to an end if supply of flats starts to exceed demand.

The report, covering July to September, showed there was a 38 per cent increase in properties let, matched by a 55 per cent spike in new rental accommodation coming onto the market, when compared with the same period last year.

The soaring levels of demand from people who have been frozen out or put off buying because of the credit crunch led to the surge in rental properties being snapped up, Citylets said.

Thomas Ashdown, managing director of Citylets, said: "There's no doubt we are seeing a significant change in the make-up of Scotland's property market. The collapse in confidence in the property buying market has seen an enormous swathe of potential homeowners divert into rentals.

"This really has been a boom time for letting agents and landlords – we have never seen anything like it.

"But it is important to realise that things can change – if demand peaks and supply continues to climb there will be pressure for rents to flatten out as has happened in other countries, such as Ireland."

Ashdown added: "The slowdown in the property market has seen a new wave of 'reluctant landlords' – homeowners or small-scale property developers who are unable or unwilling to sell in the current market – looking to rent out their homes."

Alex and Jo Grosvenor are two such "reluctant landlords": they hoped to sell their three-bedroom flat in Edinburgh's Torphichen Street when they relocated to Oxfordshire.

But after having their home on the market for two months with little interest, they decided to advertise it for let.

Alex, 32, a pharmaceutical consultant, said: "We were really hoping to sell the flat before we relocated down south, but that just doesn't seem possible in the current economic climate. We had a few people view the flat and they all seemed very interested, but none of the deals came to anything because of lack of mortgage availability and general uncertainty in the market.

"We have now decided the best option will be to let out the flat for the time being."

Ashdown said: "Looking into 2009, the risk is if the economy and financial sector in Scotland contract and supply outpaces demand at a faster rate, stock levels will rise further putting downwards pressure on rents.

"Although the effect may not be as dramatic as seen in the Irish rental market, by this time next year we could envisage average Scottish rental price growth slowing towards zero."

Citylet's reports are based on 30,000 annual lettings through 200 agents.