Tax changes and sky high prices mean it’s becoming hard for landlords to get the sums to work when scouting for new investment properties, especially in and around London. Imminently no longer being able to deduct any mortgage interest from taxable income on investment properties is changing a business model already stretched by peak prices that are no longer a safe bet when it comes to capital returns.
However, there are still some places in the UK where not only are the sales prices still rising strongly but rental returns are more than attractive enough to compensate for the loss of tax breaks. Scotland is great example of the kind of market where attractive investment properties can still be found. The most recently published update of the UK House Price Index, based on land registry data, shows that property prices across Scotland gained almost 5% (4.8%) over the 12 months leading up to June. That almost 2% above the UK average price growth of 3%, with the cities and regions further north combining to compensate for price falls in London.
The average price of home in Scotland is now £150, 472, rising to £255, 361 in Edinburgh. The price rises in Edinburgh and its commuter regions were also the highest. The capital saw house prices rise by 9.2% and Midlothian and West Lothian 9.2% and 11.3% respectively. Even more interestingly from an investment perspective are the rental yields that can be achieved. Edinburgh’s EH8 post code, which captures much of the area around Edinburgh University’s central campus and down towards Portobello on the other side of Holyrood Park has an impressive average rental yield of 10.63%. Much of the rest of the city, spread over the EH9, EH11, EH12 and EH16 post codes comes in at rental yields of an average of around 8%.
New August data also shows Scotland, the North West and West Midlands were the only UK regions to see house prices rise over the current month though the latter two are thought to be vulnerable over coming months. Northern regions, especially Scotland, are several years later in the property market cycle than London and the South.
Significant disparity has opened up and Scotland is thought to still have room for further growth as it catches up on regions further south. Edinburgh and Glasgow’s strong, diverse economies make them, and commuter areas, particularly attractive for investment properties.