Buy-to-let market 'immune in crisis'

SCOTLAND'S buy-to-let market is holding up despite the credit crunch – or even because of it – as potential house buyers are nervous about a possible drop in prices and many are struggling to obtain a mortgage.

New figures from Citylets, a Scottish rental portal, have revealed the country's rental index was 3.6 per cent higher at the end of the first quarter of this year than at the same time in 2007. It stands at 108, up from a base of 100 in January 2006. This rate of increase in rent is the highest Citylets has recorded, although it is still below inflation.

The average Scottish rent is now 633, up from 607 two years ago.

But there is a mixed picture across Scotland. While the Edinburgh rental market continues its upward trend to reach an average monthly rent of 720 from 612 in the first quarter of 2007, Aberdeen's average rent has dropped to 855 from 870 at the end of last year. Despite this decline, the granite city remains the most expensive place to rent in Scotland.

Thomas Ashdown, managing director of Citylets, said: "Demand for residential rental property remained strong throughout the first quarter of the year with traffic to Citylets.co.uk averaging 47 per cent higher than Q1 of 2007. A higher volume of properties were let than we would normally expect for the time of year and, in general, they let more quickly and for a higher rent than in the same quarter of 2007."

The average rent paid for a one-bedroom flat in Edinburgh is now 523, in Glasgow it is 454 and in Aberdeen it stands at 500. But Glasgow also seems to be suffering from an over-supply of new-build flats which is pushing down rent for two-bedroom apartments, in particular.

Statistics from Citylets show that rent for such properties fell to 671 at the end of the first quarter of this year, from 718 at the end of 2007.

In contrast, within Edinburgh, an area that stands out as booming is the EH3 postcode which takes in parts of the ever-popular New Town and Stockbridge. The average rent for a one-bedroom apartment, for example, shot up to 595 at the end of the third quarter of the year from 538 at the end of 2007. And people pay 831 for a two-bedroom, up from 799 at the end of last year.

Landlords are not having to cope for long with void periods – 52 per cent of all properties marketed in Citylets are let within one month.

But Ashdown points out that the credit squeeze has brought some bad news for landlords having to remortgage and for those looking for finance to add to their property portfolios.

He said: "Despite interest rate cuts and liquidity injections into wholesale money markets by the Bank of England, UK lenders continue to rein in and reprice their lending. The withdrawal of many mortgage products and increased arrangement fees, interest rates and deposit requirements has made financing a property purchase more difficult and more expensive."

Other commentators believe Edinburgh's rental sector will be immune from the credit crunch because of the number of long-term landlords with little debt.

Letting specialist Braemore Property Management, which manages more than 800 properties in Edinburgh, believes a core group of "cash-rich" investors dominate the market and will be unaffected by economic turmoil.

It said the result will be a solid rental market that will escape wild fluctuations, while ensuring rental levels for tenants remain affordable.

Braemore director Colette Murphy said figures from its 15 years in business show that Edinburgh's rental market is consistently strong and is relatively untouched by the national economic downturn.

She said: "When you read the various media reports you would be forgiven for thinking that investing in property would be madness.

"This is simply not true. There was a period some years ago where the typical man on the street was turning his hand to property investment. Although there were a fair number of these landlords, they never made up the majority of the market and also tended to exit pretty swiftly. Therefore anyone who geared highly and expected the rent to cover borrowings would have got out years ago."

According to Braemore, this has left a core investment group who view property as a long-term, capital-gain investment – rather than a way to make a quick buck. Murphy added: "For every person who puts the rent up to cover the mortgage there are three investors out there who won't, just to ensure their property has no void periods."

And Warners, an Edinburgh firm of estate agents and solicitors, agrees that any slight glitches in the market will not cause lasting damage on the buy-to-let sector for those in it for the long haul.

Scott Brown, estate agency partner at Warners, said: "It is important to reiterate that property is not a short-term investment.

"By viewing the longer-term, potential bumps in the markets will not make a huge difference overall.

"And the buy-to-let sector will continue to remain buoyant, as it has through recessions before. Edinburgh's property investors have a prime letting area with a number of universities and a transient workforce.

"By taking the view of increasing capital gains, rather than upping rent month-by-month, Edinburgh's investors will continue to remain strong through recessions to come, as they have in the past."