Mortgage Brokers - views on Scottish Rent Freeze

The Scottish Government's rent freeze has been designed to assist tenants with the cost of living crisis. Rents have increased by 9.9% year on year in Scotland and the rent freeze will run to March 2023. The policy comes at a terrible time for landlords whose own costs are increasing with soaring mortgage rates. This will come as a shock to landlords who havent increased rents prior to the rent freeze.

"The state interfering with free market price has negative consequences other than the attractive headline of keeping rents low. In the longer term, it disincentivises investment as margins dwindle, lowering the supply and making it harder to obtain a rental home. If maintained, it will make Scotland a hard place to move into and encourage the youth to move out to places with homes for them." "With margins squeezed and Landlord costs increasing (especially mortgages), the first thing to be cut will be maintenance, standards and service." As Swedish professor of economics Assar Lindbeck famously said, “short of bombing, I know of no way to destroy a city that was more effective than rent control.”

Whilst it might be a short term vote winner to be seen as tough on landlords, in the midst of an upward surge in prices that is being caused by a lack of supply of rental properties how does driving landlords from the industry actually help in the long term? I just don't think this actually does anything to address the root cause which is lack of housing and in particular a lack of social housing.

Does nobody in Government bother to look at history anymore? Whilst freezing rents may seem like a vote-winning strategy in the short-term, historically they have turned out as disasters. Look at New York in the 1980s and 1990s where rent controls were in place. Capping rent disincentivises landlords to continue to not only further invest but also standard upkeep of properties. Why put more money into a property when you cannot make anymore income? In New York this led to a fall in the quality of properties and followed with the increased crime rates from the broken window theory that shows a poor social environment leads to increased crime and deprivation.

Unfortunately, this is just yet another example of the SNP and Green coalition government rampaging forward with their seemingly endless and relentless campaign against landlords in Scotland. It’s a frighteningly ill-thought out soundbite policy which was evidently rushed out half-baked to try and grab the headlines prior to the UK governments inevitable energy price freeze announcement. The UK energy price freeze now announced is designed to address the very cost of living crisis the Scottish executive is now using as a smoke screen for their ongoing vendetta against the private rental sector in Scotland. Landlords are not immune to the current economic climate, not only in terms of the cost of any borrowing but also via regular maintenance expectations and the costly measures expected of them to comply with ever changing legislation and the crusade towards "energy efficiency". As these costs and government interventions increase there is no question that existing or aspiring landlords will think twice about entering the Scottish market as the potential income and return on investment is potentially being significantly impacted. Lets face it there can be few other professional businesses where the supplier rather than customer is legislated against in a way that sees them expected to absorb all of the cost and risks and yet - with this rent freeze - have no means to potentially pass on at least a proportion of this on to the customer, if they chose to do so. In practical terms, any increase in rents for an existing tenant already requires a 3 month notice period and to my knowledge there is very little evidence of significant rent rises for sitting tenants in recent times. The rents that are rising significantly are the relatively small percentage that are newly coming to the market and subsequently reflecting current market imbalances. These are unaffected by this legislation and so - rather than addressing rising rental prices - this measure could even encourage higher rents to be asked for initially as landlords fear not having the opportunity to review such things during any tenancy period. Of possibly even greater concern, for landlords in general however, is the associated legislation around yet another moratorium on evictions until 31st March 2023 (at least). So far government spokespersons representing this measure have shamefully been unable to clarify, define or provide any concrete details on what this practically means. Vague suggestions are that only evictions where the current "cost of living" crisis is the reason for a tenants inability to pay their rent will be banned. How on earth this is identified or measured nobody seemingly knows nor has the timing or grounds on which ongoing or planned eviction notices will be assessed. It’s intolerable for many landlords to contemplate that in effect the equivalent of a customer going to a supermarket, filling their trolley and then leaving the store without paying nor recourse because of the cost of living crisis could be allowed to effectively happen to landlords. Again, this scenario would not be allowed or contemplated as an appropriate measure against any other business...but against Scottish landlords seemingly for this government it's fair game. If Scotland’s landlords feel that they are having to operate in such a restrictive and lopsided market, unable to reflect market values and the rise in their costs when appropriate and reasonable nor - even more worryingly – have any confidence that they may even be able to have a non-paying tenant evicted, it seems inevitable that many will chose to sell up and remove their properties from the market. And where would that leave the estimated 15% of the Scottish population that currently rent and that the SNP and Greens are so keen to “protect”? All in all, it’s another absolute shambles of a smokescreen policy from the Scottish government and one which does absolutely nothing to address and - in fact is more likely to exacerbate - the real issue of the ongoing housing shortage affecting the whole country.

I think that the rent freeze and the on-going ban on evictions in Scotland wins easy political points, mainly due to the misrepresentation of landlords all being horrible, multi-millionaires, getting even richer off the housing needs of hard-working people. Whereas the reality is that many landlords own one or two properties, maybe they had little choice but to become a landlord as they couldn't sell a previous home, and are themselves honest, hard working people. People who will also be impacted by rising energy costs, rising interest rates and rising food costs. However, the Scottish Government is now expecting this group of honest, hard-working people to meet these costs to provide for their own family AND subsidize the costs of another family by absorbing future cost increases.

Again, theyre hitting landlords where it hurts. Yes in the meanwhile it will help tennants with the cost of living, but it doenst help the landlords with their increases in costs. All I can see happening is landlords will start to sell off their properties, creating an even more competitive rental market through lack of stock.

Do you think this is a good idea? What could be the effect on BTL market north of the border? From a tenant's point of view, this is a welcome respite from the surging cost of living, especially with more families now being shielded from evictions during the winter. However, landlords will be quick to react nonetheless because it won't be profitable for them to stay in the market and could likely get their properties repossessed. Expect to have a tighter supply of available rentals in the coming months as the industry continues to find a solution for the surging demand. Today, bidding wars on rental units have become more prominent with potential tenants willing to pay as high as 50 per cent over the asking rent. What's more concerning is that the First Minister seemed to be in a hurry to introduce an emergency legislation without the details being ironed out first. In fact, when Patrick Harvie MSP, the Minister that leads the policy, was pressed to provide details on the impact of the plan and how it will be implemented, he couldn't provide any details at all. This makes it more concerning. Are similar moves likely in England, Wales and Northern Ireland? We're expecting similar calls by housing campaigners to expand all over the country, but as to how successful it will be will depend on the short-term success in Scotland. Those who push for the idea will have to wait and see what the repercussions in the market this will have since it will likely be extended but be met with strong opposition among landlord groups. Could it affect demand from BTL landlords/overall sentiment even if other governments don’t follow SNP’s lead? Yes, it can. Rent control only impacts in the short run and this is only felt by low-income tenants when they are less exposed against rent hikes, especially at time when inflation has spiraled out of control. Below market rate rentals, however, influence decelerated investing pace among BTL landlords and may resort to move-in evictions or intentionally take the property out of the market, unless the government intervenes by introducing a moratorium like what has been introduced by the First Minister.