New figures show that between July and September of this year there was unprecedented demand for private rented accommodation.
That is because first time buyers are being forced to look for average deposits of £21,500 in some cases to get a foot on the property ladder.
But it has seen a boon in the number of people taking out long term rentals instead.
Steven Currie, from Murray & Currie Property Sales and Lettings in Edinburgh, said: “The rental market is strong, consistent and stable at the moment, which is good news for both landlords and tenants.
“There is strong demand for rented accommodation and we are seeing more people choosing to rent properties for longer periods of time.
“Many tenants are taking 12-month or longer leases and view renting as a fashionable long-term lifestyle choice, which is bringing us closer to the European rental model.”
The cause of the increase of long-term rent contracts can be linked to strict mortgage restrictions.
A Spokesperson for the Council of Mortgage Lenders said: “Since the credit crunch it has been harder for lenders to get the funding to lend.
“This, coupled with decreased appetite for risk and increased capital liquidity requirements, means it is now more difficult to get a mortgage, especially for first-time buyers who tend to fall into the higher-risk lending category.
“Before the credit crunch, first-time buyers in Scotland needed on average a deposit of 10% whereas in the second quarter of 2010 deposits had risen to 21%.
“The average mortgage advance in that period was £81,000, meaning the typical first-time buyer in Scotland paid £21,500 deposit to buy their first home.”
This lifestyle shift reflects life in European cities such as Paris and Berlin where long-term renting is considered the norm.
Figures released earlier this week by Registers of Scotland in the Register of Sasines, show that the average price of Scottish property has reached a record high but market sales are still half of what they were in their peak in 2007.
Despite the economic downturn of the past two years, the average property price has risen to £163,360, the highest it has ever been.
In the last quarter, RoS recorded an increase of 5.9% of the average house price from the same period in 2009.
Kenny Crawford, RoS Head of Commercial Services, said: “The number of properties sold over the last quarter is up on the same quarter last year by 4.9%, a difference of nearly 1,000 sales but this is still barely half of the number of properties that were changing hands in the busiest days for the property market in 2007.”
This low level of sales may prolong an emerging trend in Scottish culture to sign a long-term lease rather than invest in property.
Bill Cullins, the chairman of Scotland’s largest independent estate agent, Clyde Property said: “Our volume of sales is half of what it was a few years ago, whereas our rental portfolio has increased 100%.
“The balance between rental and the sales market tends to seesaw. It’s quite normal for rental figures to increase if sales are down.
“The rental price may have gone as high as it needs to. I have noticed better and better mortgage deals especially for first time buyers.”
Mr Cullins said that the figures released yesterday by CityLets could mark an end to the increase in price of rents but explained that the demand for rental property is likely to continue.
He said: “Arguably the rental market will continue to grow. In the last two and a half years builders have been building very few new buildings and there could be a shortage.”
Financial Advisor, Dave Worrel, 32, has been renting for three months and after 10 years as a home owner he has decided to remain in the rental market for the foreseeable future.
He said: “I don’t see myself buying a property in the next two years what with the way the market is at the moment. It’s also difficult to get a mortgage.
“I also don’t know how long I’ll be staying in Edinburgh so it gives me the freedom to move when I want rather than being tied to a property that I may not be able to sell.”
Dan Cookson, senior analyst at Citylets, explained: “It appears that there has been a growing trend in the property market towards rentals, which are now proving more popular than ever.
“Long term renting is becoming a lifestyle choice – similar to the scenario in mainland Europe – with many people happy to stay in the lettings sector rather than having the hassle of owning a property.
“Even in those cases where people do want to own their own home, many of these would-be buyers are finding that they cannot afford the necessary deposits to purchase a property because of restrictive mortgage lending criteria – so they are left with no choice but to rent.
“Until fairly recently, renting a property was seen as a short to medium-term choice that people would choose before they finally settled down and bought a home of their own. Nowadays, however, people are renting properties for longer – and many tenants are viewing their rental flat home as the place they will live for years to come.
“The challenge for the sector will now be meeting this growing demand for rented accommodation in Scotland.”
In Edinburgh, the average rent for a two bed flat in the city now stands at £681, a rise of 3.2% on the third quarter of 2009.
Most flats are now let out within a month.
In Glasgow, the average rent for a two-bed flat is now £582 – a modest rise of 0.9% on the same period.
Aberdeen remains the most expensive city in Scotland to rent property, with the average rent for a two-bed flat in the city now standing at £791 – a rise of 3.3%..
Mr Cookson added: “Although rent levels are fairly stable at the moment, it is likely that they will increase in the future.
“With an increasing dependence on the private rented sector to meet Scotland’s housing needs, there will inevitably come a point when this higher demand will lead to rent increases.
“Affordable buy-to-let finance is still hard to find and there is a limited capacity for growth among the majority of existing landlords.
“Therefore, it’s unlikely that the supply of private rented sector properties will increase in the near future – which makes it likely that pressures on rents will increase in 2011.”
REPORT: Clare Carswell
