We regularly meet up with our friends over at Warners Solicitors and Estate Agents to blether about the ‘going ons’ in Edinburgh property market so here’s a blog summarising some of what we’ve been chatting about in the past month.
It’s only been a few months since the Brexit referendum, but in the few weeks since then we’ve seen a flurry of news about its impact on the economy in general, and the housing marker in particular. You wouldn’t have to look far to have found stories about the decision to leave the EU triggering a downturn in the market, or of buyers pulling out of sales once the result of the Referendum was known.
The reality has been rather different however. At Warners they received a small number of offers in the lead-up to the referendum where the buyer’s offer was contingent on a “Remain” vote, but ultimately these sales all progressed regardless. In the immediate aftermath of the result there was a small lull in activity from both buyers and sellers, but from the start of July onwards, Warners saw things pick up again as the market adjusted to the somewhat unexpected Referendum result.
Demand Continuing to Exceed Supply
Throughout July, the picture in the local market was very similar to what was seen over the last 18 months. The number of people looking to buy exceeding the number of homes for sale and as a result, the balance of power in the market lies firmly in favour of sellers at present.
Warners reported that properties advertised were spending an average of less than three weeks on the market before going under offer. Although there are always exceptions, in the majority of cases, properties coming onto the market just now are attracting multiple notes of interest. This allows sellers to set a closing date where buyers will be motivated to submit their best offer and as a result in most cases properties are achieving prices that are equal to or above their Home Report valuation. This is borne out by the figures seen in ESPC’s recent House Price Report which showed that over 70% of homes sold in the three months to July met or exceeded the Home Report valuation. That’s up from a little over 60% a year ago. ESPC’s report also revealed that this excess of demand over supply had seen the average house price across Edinburgh rise by more than 8% annually, from £222,312 a year ago to £240,440 this year.
Interest Rate Cut Means Good News for Buyers
With buyers facing stiff competition, many people are finding that they have to make offers on a number of properties before being successful in securing a new home. The disappointment of having offers be rejected can lead to frustration among buyers, but there has been some good news for buyers with the Bank of England opting to cut the Base Rate to just 0.25%. This decision will help to make mortgage repayments more affordable for buyers, as well as for existing homeowners who are on variable rate mortgages. There was further good news for those thinking of buying with the lenders in the Bank of England’s Credit Conditions Survey reporting an increased willingness to borrowers with housing equity less than 10% of the value of their home.
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. 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 enquiries from new investors looking to buy investment properties in Edinburgh. In fact, much to our surprise, we found a definite jump of enquiries 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 three 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.
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.”
What the Future Holds for the Edinburgh Property Market
For property sellers, 2016 has seen the strongest conditions in Edinburgh since the downturn in 2008 and as we head towards the end of the year there appears to be little sign of things slowing down. Selling times continue to shorten and the premiums that properties are achieving over Home Report valuation are rising.
That having been said, downside risks remain in the market. While we have yet to see the EU Referendum have an impact on the local market, it is possible that once the terms of the UK’s exit begin to be negotiated and dominate the headlines we will see a degree of uncertainty return.
Given the current strength of the market however, a cooling in demand may be no bad thing as it will allow inflation across the city to ease back to levels that are more sustainable levels.
As ever if you are looking for any help sourcing a rental property please contact me at [email protected]. Likewise if you need any advice from a solicitor or estate agent contact [email protected] and one of their team will be happy to help.