Scotland’s buy-to-let (BTL) market has seen a sharp decline, serving as a cautionary tale for private landlords in England. Recent data highlights that the number of landlords investing in property in Scotland has dropped to its lowest point in 15 years, following the implementation of rent controls.
In 2024, just 5.7% of homes purchased in Scotland were for investment purposes, nearly half the rate seen in 2021. This steep decline coincides with the introduction of a 3% cap on annual rent increases by the Scottish National Party (SNP) government. Although this cap was lifted in April 2024, the market has yet to recover.
Further proposed measures by the SNP could keep investor confidence low. These include a potential new rent cap of 6% and a prohibition on raising rents between tenancies. The latter was not enforced during the initial phase of rent controls but remains under consideration.
This decline in Scotland’s BTL market underscores the significant impact rent control policies can have on property investment trends. It raises questions about the potential implications of similar policies elsewhere.
Landlord properties are becoming ‘unviable’
John Blackwood, chief executive of the Scottish Landlord Association (SLA), has expressed serious concerns about the long-term sustainability of rental properties under Scotland’s current and proposed rent control measures. He explained that landlords are growing increasingly apprehensive about their ability to manage rising costs if they are unable to adjust rents to reflect market conditions between tenancies. According to Blackwood, the gap between the rising expenses of maintaining rental properties and the limitations on rent increases could make many rental properties financially unviable.
The situation appears to have prompted significant dissatisfaction among landlords. More than half of the SLA’s members have indicated plans to downsize their rental portfolios over the next five years. Alarmingly, nearly eight in ten of these landlords attribute their decision to perceived hostility from the government towards the private rental sector. Many feel that policies aimed at controlling rents have created an environment where their investments are no longer secure or profitable.
Timothy Douglas of Propertymark has echoed these concerns, calling for a reduction in tax burdens for landlords to address the rising costs faced by tenants. He believes that alleviating the tax pressures on property owners could help create a more stable and affordable rental market. Douglas also pointed out that while the Scottish housing minister, Mr McLennan, has started to recognise the crucial role landlords and investors play in solving the housing crisis, more action is required to restore confidence among landlords and letting agents.
Douglas added that inflation-linked rent increases could help attract new investors to the sector, but additional reforms are essential to ensure long-term stability. He emphasised the importance of fostering collaboration between the government and the private rental sector, as a thriving rental market is vital to addressing Scotland’s housing shortage. Without meaningful changes, he warned, the exodus of landlords from the market could exacerbate the housing crisis, leaving tenants with fewer options and higher costs.
Additional dwelling supplement on rental property purchases
The Scottish National Party (SNP) has recently implemented a significant policy shift by increasing the additional dwelling supplement on rental property purchases from 6% to 8%. This marks the second such tax hike in two years, further intensifying the strain on landlords operating in Scotland’s rental market. The decision reflects the government’s ongoing efforts to regulate the housing sector and control the rising cost of living, but it has ignited concerns about the sustainability of property investments and the overall health of the rental market.
Rent controls were first introduced in Scotland in 2022 through an emergency bill, which saw a six-month rent freeze followed by a 3% cap on annual rent increases. While the intention was to ease the financial burden on tenants amid a cost-of-living crisis, the results have been mixed. Despite the cap, the cost of renting in Scotland has continued to surge. DJ Alexander, the country’s largest estate agent, reported a staggering 20% increase in the cost of a one-bedroom flat. This is due, in part, to the fact that landlords were still able to raise rents between tenancies, allowing them to recover some of the financial pressures they were facing.
This surge in rental prices has had a direct and alarming impact on homelessness rates across Scotland. According to official government figures, 40,685 homelessness applications were submitted in 2023-24, marking a 4% rise compared to the previous year. This increase in homelessness is the highest recorded since 2011-12, signalling that the housing crisis is deepening rather than improving. Many critics argue that the SNP’s rent controls, while well-intentioned, have had unintended consequences, pushing both landlords and tenants into increasingly precarious financial positions.
The homelessness figures have sparked a sharp response from political leaders, with Scottish Labour leader Anas Sarwar calling for the resignation of the country’s housing minister, Mr McLennan. Sarwar contends that the government’s handling of the housing market has been ineffective, failing to adequately balance the needs of both tenants and landlords. He argues that rent controls, in their current form, have exacerbated the affordability crisis, leading to higher costs and greater instability for renters.
In response, experts, including those from industry bodies like Propertymark, are calling for a more nuanced approach to rent regulation. While there is widespread agreement that the housing market needs reform, many believe that the current policies are too restrictive and fail to address the broader issues at play. These include the lack of affordable housing stock, rising inflation, and the increasing financial strain on landlords.
The situation in Scotland serves as a cautionary tale for the rest of the UK, highlighting the potential unintended consequences of overly stringent rent controls. As housing markets across the country continue to struggle with affordability, policymakers will need to strike a delicate balance between protecting tenants and ensuring that landlords are able to maintain viable and sustainable businesses. Without such balance, Scotland’s experience may serve as a warning of the negative impact that poorly executed rent controls can have on both the rental market and the broader economy.
Download NOW
4 Simple Steps To Becoming Wealthy Through Property