Buying can be more affordable than renting - David Alexander

Two weeks ago this column focused on the revival (at least for landlords seeking to boost their incomes) of the private rental market in Edinburgh, almost two years since the covid pandemic became an everyday feature of daily life.

Given the economic mayhem that went before –and the fact that we do not yet seem to be out of the wood yet - some readers could have been forgiven for taking this information with a piece of salt or felt that, if true, the phenomenon applied only to the capital, whose market is unique in Scotland.

Yet just a few days later the latest quarterly review of the UK market from Zoopla – which I did not see in advance – confirmed that the revival did indeed apply to many parts of the country.

In fact, within Scotland in 2021, the increase in average monthly rents in Glasgow was actually higher, at 9.5 per cent, than in Edinburgh, where it was 7.2pc although the average rental income per property in the capital is still substantially higher (£974 compared to £711 per calendar month). Even in Aberdeen, on balance still suffering from the downturn in oil industry development despite the recent surge in the price of crude energy, average rentals rose by 2pc, to £577 pcm. The average rise for Scotland as a whole was 4.8pc, with the average monthly rent for the country standing at £639.

The increase in Scotland has not been as high as some parts of England (not to mention, Northern Ireland where Belfast showed the highest rise in rents of all at 10.9pc). Bristol, the city in England that might be best compared to Edinburgh in terms of population and lifestyle, recorded a 10.3pc increase (to £1119 pcm) although Nottingham did even better at 10.6pc.

So what does this mean for the tenant?

Well, on a pro-rata basis life seems to be better for someone renting in Glasgow where the affordability level (i.e. percentage of rental costs to gross income from a single earner) is 25.5pc compared to 35.2pc in Edinburgh. However, lest this column is accused of being Edinburgh- and Glasgow-centric, let’s focus on the affordability average for Scotland as a whole, which is 24.2pc.

According to one data organisation, the average salary in Scotland towards the end of last year was £31,672. HM Land Registry put the average price of a house in Scotland as at November last year at £182,755. Assuming a 95pc mortgage the balance of £173,618 would cost £869 a month over 25 years at the current variable rate of 3.5pc. (This does not take into account initial lower fixed rates but the variable rate is likely to be higher than 3.5pc when these come to an end). Therefore purely on affordability terms, the average Scottish rent does seem favourable although of course renting does not offer capital appreciation. It’s the opposite in Edinburgh where, the figures suggest, buying is more affordable than renting but only if (and it is a big IF) the absence of a £9k-plus deposit and the low entry and exit professional costs of renting are not taken into account. In summary, if you want to put down roots and build up a capital asset then buying is almost always the best choice wherever you are but for those with flexible professional lives (especially at the beginning of their careers and even post-retirement) renting could still be the better option.

This is likely to be one of the reasons why a survey by London-based Octane Capital has found that the UK’s buy to let sector has grown in value by £240 billion over the past five years, an increase of 16.8pc. This, it estimates, has brought the value of the country’s BTL stock to £1.7 trillion.

One company certainly doing OK from buy to let is Oldbury Residential Ltd, which manages flats in Manchester and Stockport and had an investment value in April last year of £3.4 million, according to accounts filed with Companies House.

The directors of Oldbury Residential? A certain Mrs Cherie Blair and her son, Euan.

David Alexander is managing director of DJ Alexander