The ESPC Property Show: Update on the Edinburgh rental market

Megan
Hello and welcome to the ESPC Property Show. I am Megan and I am hosting alone today, which is a little bit of an anomaly on the ESPC Property show. Paul unfortunately couldn't make it along to recording today, so it is just myself and I'm joined by a great guest and a returning guest. So if you're a frequent listener of the podcast, you'll be very familiar with Nicky Lloyd who is our guest. She is Head of lettings at ESPC Lettings and she came in to chat to me all about the lettings market in the city of Edinburgh.  It was a very interesting conversation. We cover everything from rental prices going up, time to let, what that means for the rental market, the supply versus demand situation in the rental market as well as the current legislation for landlords. So if you are thinking about becoming a landlord or you already are a landlord, it's really a great listen. Just find out a little bit more about the current market. But without further ado, I will pass you over to my conversation with Nicky.

Megan
OK, so we're back for the next episode with Nicky, who is ahead of lettings at ESPC. Lettings. Welcome back, Nicky.

Nicky
Thank you. Thanks for having me again.

Megan
Yeah, no, I've just. I've got it noted down here that your first guest to score a podcast, Hat Trick.

Nicky
Oh well, someone's gotta be. I feel very privileged, yeah.

Megan
So it's great to have you back. And I'm in a safe pair of hands as a solo hosting today.

Nicky
No, that's fine. Well, hopefully we'll see, absolutely.

Megan
So just to to start chatting about the, the rental market in Edinburgh. So the both times that you've been on the show previously, we've spoken about the lack of supply in the market and I was just wondering if is that something that we're still seeing?

Nicky
Yeah, definitely that. There's not been, I would like to say there's not been any change, but if anything it might have got a little bit worse and there's even fewer properties kind of this time of year can be quieter. But there definitely seems to be fewer properties around and about. It can be a combination of a few different things. So tenants are staying longer, so you're not getting those properties coming back on the market. Landlords are having their own issues and maybe having to sell for financial reasons. So those properties have been taken from the rental market and also buy to let landlords are a little bit nervous about all of the other things that are going on. So they're not purchasing. So all of those things combined means, yeah, there's still not an awful lot out there, unfortunately.

Megan
Yeah. And I guess the CityLets report came out a couple of weeks ago now we're recording this in November. But I was having a look through it before our chat and saw that 44% of Edinburgh properties were let within one week, that's really quick and then 88% were off the market within a month. So I think I know the answer to this, but are you guys still seeing that can really quick fast-paced market?

Nicky
Yeah, definitely. So even though, as I said, it's a quieter time of year, there's still, as soon as something goes live, there are stacks of inquiries, lots of really great potential tenants. But what we are finding is maybe tenants are attending multiple viewings and submitting multiple applications on lots of different properties because the competition is so fierce. They're actually kind of applying for lots of different properties and then if they're accepted on one, great, they move forward. So they kind of spread bet in their odds if you like. So we've definitely seen that happening of late as well, which is an interesting kind of change and I think it is just tenants really trying to to secure a property. They feel that that's what they're having to do, which is a shame, yeah.

Megan
And are you, So are you still seeing quite a backlog with, are you seeing similar tenants apply? Yeah.

Nicky
Yeah, not so much as we were maybe during the summer where things were super hectic. But yeah, they'll be the same people that kind of, if they might missed out on one property that they'll arrive at the next viewing. And it's not that these people wouldn't make great tenants. It's just like I say, the competition is just really, really fierce.

Megan
Yeah. So again, according to the CityLets report, the private rental rates have gone up as well. So tenants are find it difficult to secure a property, but when they do the the rent is has increased in recent months so it's gone up 16.5% annually to the new high of £1546 per calendar month. Are you seeing the rental prices increase too?

Nicky
Yeah. So, I mean, it's such a lot of money to be paying on your rent. Yeah. And. Landlords are doing this when they're getting the opportunity, When they're looking for new tenants, they're taking the opportunity to really increase their rent because of the rent cut. They can't do it during the tenancy. So when it becomes vacant and open for a new tenancy, then they're really trying to push those rents. But tenants are wary of their own finances and tenants finances aren't unlimited. And I think we're reaching the point where it's just got to stabilize because people can't keep. Going and going and going and in fact I would say that properties that we have that are maybe over kind of 1200-1400 a month, that seems to be the kind of cut off where all of a sudden the market is really reduced for people looking to spend more than that. And some of maybe the really higher rents, you know that we're up at 2000-1800 are sneaking down a little bit because I just think people are more aware of their finances and whilst landlords are trying to get more rent. Tenants have only got so much money that they can spend. So I think we're gonna soon come to that spot where it's got even itself out.

Megan
Yeah. I think we've anecdotally heard quite a few people who have had the increased mortgage rates on their buy to let and that's why they're. Yeah. So it's like it's not easy for anybody at the moment.

Nicky
All it's not, and I can understand why landlords are taking the opportunity they want to try and cover their costs, but yeah, there's got to be a stage. Which I think we'll be reaching sometime soon, maybe when we kind of get into the springtime and things start to get busy again, we might start to see rents settle a little bit. But yeah, there's so many different things and factors. But I think at some stage it's going to happen. It's probably going to be quite soon.

Megan
Yeah. So as you mentioned, the rent cap is in place, that's still in place till March, yeah.

Nicky
So the rent cap, so maximum of 3% for any current tenancies that's due to stay in place until March 2024. What happens beyond there, we don't know. But what I would think is there likely to be some form of restriction that they're going to continue with, whether that be the introduction of Rent Pressure Zones. So it's just in certain areas that rents will be restricted or if they're going to still put a cap on the rent, but not at 3%, you know, maybe we'll go back to you know, kind of 5%, who knows. But yeah, as it stands at the moment. Nothing beyond the 3% until March and then, yeah, game of wait and see. Unfortunately, they like to leave it until the very last minute before letting us know. So all of those landlords wondering just at the moment, should they just, you know, do the 3% increase or or wait until March, who knows is the answer. I think if you can do it then do it now because. You don't know what's going to happen next.

Megan
So that 3% increase that's applicable on existing tenants is only, but you can increase when the tenancy comes to an end and you've got a new tenant.

Nicky
Yeah, exactly. So if your tenants are in situ and we would increase its once every 12 months that you can increase the rent. So if you've got a tenancy that has been in place for a long term and the rent hasn't been increased in the last 12 months, then you can increase by a maximum of 3%. If your tenant leaves, or if you're new to the property market and looking for a tenant for the first time. Basically, if your property's being re advertised, then you can set the rent at whatever is appropriate.

Megan
So a lot of people might be thinking, OK, there's a cap in place, but the average rent's going up and up and up, but you would think that the cap would stop that from happening. Why? Why is that still happening?

Nicky
Yeah, I mean, it really hasn't and a lot of the regulatory bodies in the Latins industry, you know, kind of warned the government that this was not going to be the answer back when they first made the announcement, the government listened to nobody and plowed on. But it really hasn't helped kind of new tenants, if you like, because when the landlords are looking to find new tenants, they're hiking those rents up because they know during a tenancy they're going to be restricted. So if you're maybe a tenant. That's been in situ.

You know you are only going to be getting a maximum of 3% which you know that's great for them. But the vast majority unfortunately that are moving in or around the city and are looking for a new tenancy are bearing the brunt of those bigger hikes for new tenancy. So it's not really worked out particularly well for anybody unfortunately.

Megan
Yeah. So speaking of prices and and rental prices, if there's any prospective landlords listening, how can they set a price that is the right price and it's, you know, they'll get their property off the market, but it will be, yeah, reasonable for that property.

Nicky
Yeah, and there's always a fine line between 4 landlords you want to. You know their aim is to get a quality tenant at great rent and there's a fine line between maybe you know pushing the rent as high as you can, but then the property being unoccupied and then they're having to cover costs. So you really need to make sure you are setting it at the right rent so that it rents and you get great tenants. What I would say is you know speak to the professionals, we're always able to review the market. We can access data through CityLets report on recent lets to see what other properties in the area have recently. Entered for that are being advertised at the moment particularly the market as it is now. Things are changing, they're up and down. People are maybe wanting to get more rent, how much is more rent? So really what I would say is make sure that you speak to a professional and they will steer you on what it's is the right price for your property.

Megan
Perfect. And I guess one thing that people might be considering is rental yield. Yeah, how, how is that calculated? What is rental yield in case someone's listening, going. I don't know what that is.

Nicky
Yeah. So I think we use the phrase yield quite a lot when we're talking about buy to let and it is essentially is the profit that you're making. So gross yield is your profit that you make before all of the other deductions. So that's calculated by kind of what you purchase the property for compared to what you get in a year on rent and then you can do the sum and it will give you an average yield.

So at the moment the average yield in Edinburgh is around about 7% or thereabouts. So that's that's a gross yield. It's before any deductions, but that's essentially kind of a 7% profit in your year, which I think is a little bit more than you get in at banks at the moment. So you know it's not bad and ideally you're going to be getting that capital growth. If you go, you know we really it's a long term investment.

So ideally you want to make a little bit of money in the short term, but also have that capital growth so that you can you know have that property in in the next 10-15 years time and it'll hopefully gained a little bit more money.

Megan
We've kind of already touched on this when we mentioned the the, the rental cap, but there is quite a few bits of legislation that have changed over the last 12-18 months I think. I don't know if you want to chat through the legislation that has changed for for landlords in recent times.

Nicky
Yeah. So we've had the rent cap, which was obviously the big one for existing landlords and that kind of really shook everybody came alongside. That was the moratorium on evictions. So this meant whilst you could still serve notice on your tenants for all the appropriate grounds, if they chose not to leave at the end of your tenancy then you were unable to unable to evict them unless there were specific reasons that were deemed to be appropriate, but generally speaking.

No evictions happening at the moment. So I think landlords were a little concerned about that. You know what if I've got an awful tenant and I can't get rid of them. That's been weighing on a lot of kind of landlords minds. Again, that's with the rent cap until March 24.

So we'll see what happens there, but that will be something that they'll let us know about at that time. For other kind of new landlords things to consider, there was increases in the additional dwelling supplement tax. So that went up from 4 to 6%. So all of a sudden, if you were looking at buying a property to rent out, you were having to pay an extra 6% in tax, which you know, nobody likes paying tax at the best of times, let alone anymore and so that was a little bit of a consideration for new landlords.

And then of course we've had all of the changes and ups and downs and roundabouts with mortgages and kind of interest rates and products that have been available. So that's been a little bit of a battle as well for for some new landlords and existing landlords who've seen their prices and products change. So they've become more and more wary of of what's going on there. So it's been quite a lot to consider.

Megan
Yeah, absolutely. Yeah. So I guess if somebody's listened to all that and they're, they're still thinking that....

Nicky
It's a great idea. Honestly, I don't think as long as you've warned with all of the information and you plan and budget, you know, it's still a great thing to do is what I would say, Yeah.

Megan
And something we always say when you're on here is that you're providing a home, Yeah.

Nicky
Absolutely. And there's a real need for homes. So. Yeah, it you are doing a good thing as well.

Megan
So if someone is decided that you would like to purchase a buy-to-let property, what are the best areas they can do that in Edinburgh?

Nicky
So fortunately, you know, Edinburgh is popular throughout and there's lots of areas where people are looking to move in and around the city, whether it's for work or schools or friends or family. So there's no real areas that I would say don't buy there. You're never going to get it rented. But there are other areas that are maybe popular or that are offering a great yield. So those are EH4.

So that's kind of. Maybe Blackhall,  Clermiston, Craigleith and Drum Brae. That area is really quite popular at the moment and you can still get a really good purchase price. So that what's that's what offers a really great yield EH8 So Newington, Meadows, Southside always popular, a real mixture of students, professionals and again still quite reasonable purchase prices and then EH 12. So Corstorphine., South Gyle, that kind of area and that's kind of popular with maybe young professionals, families kind of looking at working around the Gyle area, being close to kind of getting out onto the motorways.

Megan
So those are the areas that are popular with renters and offering the best yields here at the moment, although I think that's really useful for anybody thinking. But yeah, as you say, there's lots of other areas.

Nicky
In your room, yeah. As I say, there's there's no area that I was like, if don't go there, you'll never get it rented literally anywhere will rent at the moment. But what you want to need or what we'll need to do is to make sure that you're choosing somewhere that's going to get you the best yield. So yeah, that's it's really being conscious of what you're paying for a property.

And make sure you make the decision, you know, with a business head, not necessarily a heart, yes.

Megan
So again I think I know the answer to this question. What if someone is the picked where they're gonna buy their buy to let? What type of property should they be looking at?

Nicky
Yeah, you know the answer. So there is an absolute drought of one bedroom flats. There are none to be had on the rental market. So and I think it's just literally because people aren't moving from them, they seem to just be kind of staying, they're secure. And so yeah, if you were thinking about investing in a property, then my advice would be a one bedroom if you can 2 one bedrooms rather than a two-bedroom because you know it will offer you maybe sometimes an equal or even better yield than 1/2 bedroom and you know you hopefully going to get good capital growth on those as well. So absolutely any way you can. If you're thinking about buying a property to rent then then definitely a one bedroom would buy. It would be my, my recommendation at the moment, Yeah, absolutely.

Megan
So looking ahead to me to 2024, it's closing in, I know, do you see any changes happening in the the market? I can't. imagine there will be unless someone waves the magic wand.

Nicky
But I don't, I really don't know. I think up until March where all of this kind of rent cap and the eviction ban and all of that is still in place, then that I think is going to very much continue the trend. Until then, depending what might happen then we might see. Kind of a little bit of a surge in people either either wanting to leave the market because it's not great news or actually they've relaxed a lot of things and more landlords wanted to come in. So I think that's going to be the turning point of the year, but I don't know which direction it's going to turn.

I would like to think that more people are going to get involved in buy to let property, more people are going to invest, and more people are going to create homes for for people that are desperately looking to rent.

Megan
Yeah, absolutely. I think that's a kind of great message to finish up on. So just to wrap up, I'm going to let you out of a pitch for lettings just in case anyone's thinking that they're looking for a new letting agent or they're thinking about coming onto into the the market. What how can you guys help? What What do you guys do for landlords?

Nicky
Sure. So we're here in the Information Centre on George St. We're here for anybody to drop by if they're looking for advice. If they're looking for advice about investment property, if they're an existing landlord, they're thinking about becoming a landlord. We're here for advice.

But what we can also do is help them through the process. So that can involve securing tenants, managing the property. We offer a full management service where we can take care of everything, make sure everything is meeting legislation. You're getting the right rents, you're getting the right tenants. So yeah, we can essentially do everything from that very first notion of you thinking about becoming a landlord all the way through to finding the tenant and managing it and looking after it for them. So yeah, we can do everything here.

Megan
Perfect. Well, thanks so much, Nicky, and thank you for coming back on the show.

Nicky
Thanks for having me. And hopefully, next time there'll be a little bit of a difference in the market. Yeah. And we can hopefully focus on more positives.

Megan
Yeah, absolutely. Thanks so much. Thank you.