Buy to Let Market Strong Despite LBTT Changes
During the first three months of 2016, activity amongst buy-to-let investors had been particularly strong. Many investors sought to complete purchases before the change to Land & Buildings Transaction Tax (LBTT) earlier in the year, as these changes meant that an additional 3% charge would be levied on those buying a property that was not going to be their primary residence.
Brexit hasn’t Put Off Buy to Let Investors
There had been fears that, following a rush of sales prior to the tax change, demand from investors during the second quarter of the year would begin to tail off, however as yet this has not been the case.
Andrew Whitmey, Director with Umega Lettings explained: “We saw a flurry of activity in March as many budding investors looked to beat the additional surcharge start date. After that though we continued to receive normal levels of enquires from new investors looking to buy investment properties in Edinburgh.
“In fact, much to our surprise, we found a definite jump of enquires from existing buy-to-let landlords looking to purchase properties in the wake of the EU referendum ‘leave’ vote. While we had anticipated that investors might be put off by the uncertainty that this result might cause, this has not been the case with several existing landlords looking to expand their portfolios. We have also seen a 40% increase in enquiries from overseas investors looking to take advantage of the weaker pound and not deterred by the perceived uncertainty that followed the EU Referendum.”
Edinburgh an Attractive Investment Option
The strong high level of demand in Edinburgh from buy-to-let investors can be explained by the strong fundamentals underpinning the market in the Capital. Edinburgh is home to four universities meaning that landlords can feel confident about strong rental demand from both students and graduates.
The number of households in the city has risen in recent years and is projected to rise still further over the next decade and, with the rate of new house-building not currently able to keep pace, there is also potential for robust capital growth
Finally, Edinburgh’s economy, which already boasted a strong financial services sector, has been boasted by an emerging technology industry thanks to companies like Skyscanner, FanDual and Cirrus Logic buzzing away at Quartermile.
Average Monthly Rents in Edinburgh Rising
Whilst the Edinburgh market as a whole is performing well for investors, one-bedroom flats have offered particularly strong returns. According to Citylets’ latest Rental Report average rents in Edinburgh rose by 6.8% annually during the second quarter of 2016. Rents for one-bedroom properties rose fastest at 8.7% year-on-year. 34% of one-bedroom properties spent less than a week on the market before finding a tenant meaning that landlords are also enjoying very short vacancy periods.
Andrew Whitmey at Umega commented: “One-bedroom properties in the Capital are affordable for a professional tenant and there are some thriving areas within walking distance of the city centre. A one bedroom property can be picked up for between £100,000 and £150,000 – an achievable budget for many budding investors. We have identified three key areas of the city where we are focussing our efforts for clients looking to expand their portfolio.
“Our first choice is the area of Fountainbridge which is undergoing a huge regeneration of the old Brewery sites next to The Union Canal. The whole area has been, and will continue to be, lifted with residential development and a bustling office, restaurant and bar scene along the canal. This is a popular area for young professional tenants, in walking distance of the modern offices around Lothian Road. One bedroom properties in the area are achieving rents of between £600 and £700pcm and it’s a great time to pick up these properties before the full impact of the regeneration takes its effect on capital values.
“Another great option, just a stone’s throw from Fountainbridge, is Dalry. It’s within walking distance of the City Centre and has already benefited from the recent transformation of Haymarket Station. ‘The Haymarket Edinburgh (tHe)’, a long overdue office, leisure and retail redevelopment - is finally underway which will transform this part of the city which can only be a good thing for nearby property values and rents, which currently sit at similar levels to Fountainbridge.
“Finally, as evidenced by the rather frustrating traffic jams that fill the roads around John Lewis, The St James Centre is being completely redeveloped into a mixed-use scheme including a shopping mall, cinema, residential blocks and a hotel. The development will be completed in 2020 and will overhaul the area at the top of Leith Walk, having a huge impact on property values in the surrounding areas. One-bedroom properties in the area currently let for anything from £600-800pcm giving landlords strong rental yields.”