MAE23: Experts warn of unintended consequences to ‘self-defeating’ Scottish rental freeze 

Rent freezes on both private and social rents will have a huge impact on the Scottish buy-to-let market, a panel of mortgage experts said today.

Related topics:  Landlords,  Rent,  MAE,  Scotland
Property | Reporter
24th March 2023
mae panel
"It’s been a tough, tough time for landlords. They’ve got the additional dwelling supplement, the rent cap, and the drive to make homes more energy efficient as well. Will it reduce supply?"

Speaking at Glasgow’s Mortgage Adviser Event, which took place at The Engine Works on Thursday, the panellists warned that the changes would lead to fewer new landlords joining the market and that it was a ‘tough time’ for landlords.

The Cost of Living (Tenant Protection) Act 2022 for Scotland included bans on certain types of eviction and a rent increase cap restricting private landlords from raising rents until the end of March 2023 and until 26th February for social tenancies. From 1st April, the permitted rate of increase for private rented sector tenancies is 3% and can only be increased once per 12-month period. A number of exceptions apply to all rules introduced.

While panellists were sympathetic to the aims of the legislation in tackling rising rent prices, they warned that in the long run, it may be ‘self-defeating’ as it would drive prices up for new tenancies as landlords were facing rising prices on buy-to-let mortgages.

Chris Kirby, head of key accounts & specialist distribution at TML, said: “I fully understand the sentiment behind it - the cost of living, and wanting to make sure that people can still afford to heat their homes, put food on the table and support their families. But there hasn't been a cap on the lending market or how much mortgage rates have gone up.”

He argued that this narrowed the margins for Scottish landlords, some of whom might decide to invest elsewhere as a result – including in England, adding: “Ultimately, all it does is move people out of the private rental sector and further squeezes supply”.

Graeme Muirhead, head of regional development for Scotland & NI at Barclays, agreed, adding that it would be more likely to hit smaller landlords.

He said: “It’s been a tough, tough time for landlords. They’ve got the additional dwelling supplement, the rent cap, and the drive to make homes more energy efficient as well. Will it reduce supply?

"Certainly the landlords’ association [Scottish Association of Landlords] as 44% of Scottish landlords are considering selling properties within the next five years and 30% are running at a loss. Those are big numbers and it’s not sustainable.

“Most likely what you’ll find is the pension planners and accidental landlords will probably take a step back and you’ll see opportunities for the professionals who will come in and snap up properties. But long term, if there is less supple – which is very possible – then it will increase rents because demand is not going anywhere.”

Muirhead cited tightening affordability rules and increased mortgage rates in the residential property market as drivers for demand, along with an increased cost of living making it harder for buyers to afford to save deposits or move to larger homes. Panellists agreed that this would drive demand up, increasing rents in a shrinking private rented sector.

Concluding that time would tell what effect the rules would have on the market longer-term, Ian Andrew, managing director, intermediary sales, at Nationwide, said:

“You would think that over the course of time, the private rented sector would reduce – but it hasn’t really played through in the numbers yet. We’ve got the extended deadline of September [when the rental cap rules expire] and it’ll be interesting to see if that’s extended.”

Mortgage Adviser Event takes place in Glasgow, London and Manchester each year – advisers can pre-register for the London event taking place in May here

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