Keep the Heid! - How are Scottish landlords holding up?

It has been a seriously tough time to be a Scottish landlord of late. With legislators in Westminster no doubt keeping a watchful eye to see how the market across the Border has fared under tougher rules and a rent freeze. Writer Alex Daley takes a look at the current situation and talk to landlords to see if they’re ‘pure done in’ or ‘it’s nae bother’.

One of the memorable lines in the film ‘Braveheart’ is “the trouble with Scotland is that it’s full of Scots” – no offence to our Scottish friends. Now if King Edward was alive in 2023, he might have more issues with just how hard it seems to be a landlord in Scotland, than the fact there is no love lost between the people either side of Hadrian’s Wall.

Let’s start by looking at what’s currently happening as a result of the Cost of Living (Tenant Protection) (Scotland) Act 2022 which included a rent freeze and restriction on evictions.

Propertymark (an organisation for estate agents) reports that a whopping 85% of their agents had landlords who had expressed interest in leaving the private rental sector and selling up.

But that’s just expressing interest, no biggie.

They also report that 68% of agents have already seen a spike in how many have had notices to sell.

Timothy Douglas, Head of Policy and Campaigns at Propertymark, said: “The measures introduced… are disproportionate to the scale of the problem and have only driven more landlords out of the sector. Feedback from Propertymark members shows that because of the measures introduced by the Scottish Government, the desire for landlords to remain in the sector and increase the number of homes for people to rent is stalling.”

Although data so far, seems not to be showing that a mass sell-up has occurred.

“Early data does not show any drop in private rental properties, despite the Scottish Government’s rent freeze. Minister for Tenants’

Rights Patrick Harvie said administrative figures showed a small increase in private rented accommodation,” Insider explained, although making a large point of the fact that this was very early stage data and perhaps not a good reflection of what was truly happening. Only time will tell on that front.

If the data was accurate, it would go hand in hand with what Buy To Let Group member and Scottish buy to let flat investor Laura told us: “My current strategy is the same as its been for the last 10-plus years. Challenges come up and change over time but for me renting out my property works. When/if it doesn’t anymore I’ll sell and look at something else.”

In December 2017, the Scottish government abolished the equivalent of England’s Section 21, often referred to as no-fault evictions. They did though, change up the process for evicting when there was a fault, notice to leave can be issued at an earlier stage and there are 18 mandatory and discretionary grounds for repossession under the system. So, it’s important to make clear, this hasn’t removed the landlord’s ability to evict in many circumstances. Essentially, each tenancy agreement is open-ended, landlords can’t

just end them at the end of the fixed term (say 12 months) and find a tenant who is willing to pay more.

Stephen McInnes, a landlord with a portfolio of unencumbered properties in Scotland says that when it comes to evictions it can be an extremely difficult prospect for Scottish property owners and contests that landlords are exiting the market at a higher rate.

“Section 21 is now redundant due to the moratorium in Scotland which protects tenants to the hills. You have to get a tier 1 tribunal to do anything now and it’s takes months to get them out. So, many landlords are selling in Scotland which is going to push rents up and put extreme pressure on councils. The Scottish National Party think they are clever but will soon reap what they have sewn,” McInnes says.

When it comes to the SNP many property commentators believe that the appointment of Humza Yousaf as the new leader replacing Nicola Sturgeon will not signal a softening of policy towards landlords, as he has previously supported more stringent regulation.

We asked Head of New Business for Glenham Property (an Edinburgh-based investment and property management company), Charlie Inness how he has been managing the new hurdles with his portfolio.

“My portfolio is BTLs, mainly flats as I tend to invest in cities. I’ve not had to evict anyone personally (under his portfolio) but we, as a business, have served notice on plenty of tenants and in most cases have no encountered a problem.”

On wider strategy, he commented: “I keep to low gearing levels, I like to stick to around 60% LTV and I always stress test at higher interest rates” which has kept him insulated against some of the troubles landlords are facing.

During the Covid-19 years, the Scottish parliament amended the private housing act 2016 with “(1A) The landlord under a private residential tenancy may not increase the rent payable under the tenancy for a period starting on the day the Coronavirus (Scotland) (No.2) Act 2020 comes into force and ending two years after that day.”

This meant there was a two-year rent freeze, which, during a time, especially in the last year of the freeze, where rents were going up, up and away, meant a lot of landlords were left with a bad taste in their mouths.

Charlie Innes

OUT OF THE FREEZER, INTO THE FRIDGE

Relief arrived though and the rent situation should only get better from now. Well, a little better. Rental amounts were taken out of the freezer and put in the fridge. From April 1st, landlords have been able to increase rent once annually (as in England), with three months’ notice. But… And this is a big but, that’s limited to 3% per year.

In fairness, if we look at our article in issue three of OTH Magazine about raising rents, isn’t a million miles off what many landlords do. Joe Trembath from Woodland Properties said: “As a company we raise rents across the portfolio at 5% a year to absorb raising costs faced on the company from licensing, increased maintenance and so on we have done this for 20 years never once had an issue, as our rents are still below average for area by around 10%”

Interestingly, in commentary from

Scottish letting and estate agents, there was some feeling this rent fridge (we’re calling it that now) was backfiring when it comes to some landlords. One of the agents said, “Many landlords who have not increased rent and had properties below market value for years are now considering this position and feeling they must raise to market rent from now on and keep up with annual increases, whereby before they had not considered it.”

Inness added: “I’m raising my rent on existing tenancies by the 3% but I have done OK in terms of rents as the majority of my properties are close to current market rent. This may change a little over time if some of my existing tenants decide to remain, but I can deal with it.”

Fundamentally, there seems to be a huge undersupply of rental accommodation in Scotland across all sectors.

This is acutely felt in the student rental sector due to government interventions also backfiring. Glasgow university which has around 38,000 students has even asked some students to ‘pause studies’ due to lack of housing. Citing ‘significant contraction in the private rental market’ as the leading factor. Not at all surprising then that the National Union of Students (NUS) in Scotland has said the situation is ‘deeply concerning’ and this has been widely described as a ‘housing emergency’.

The reality is being a landlord to students in Scotland is both unappealing and deeply unpractical. With the government getting rid of a landlord’s ability to use fixed terms to end tenancy agreements, it throws the entire student business model into chaos. Where in England a landlord would agree July- end of June terms with a group of tenants, and when November rolls around, they’d agree with another group to take over the next July, after the current tenants leave. With no ability to end a tenancy at the end of the academic year, landlords have much less of an ability to ensure a smooth transition to their next group of tenants. And of course, there’s a worry tenants will drop out midway through the year. The result will likely mean more and more landlords exit the student market, some choosing to rent in the non-student rental market and some selling up.

Ben Beadle, chief exec for the NRLA emphasised this point: “It is inevitable that such a move will force some student landlords to rethink their portfolios and move out of the sector altogether. This in turn will reduce the accommodation options open to students, with a reduction in supply pushing up rents.

“The poorest will be hit hardest, unable to afford homes in the purpose-built blocks, which can be £120 more per month to rent, as PRS landlords exit the PRS student market.”

MOUNTING A DEFENCE

Landlords in Scotland are attempting to fight back though, with a nine-page legal complaint which argued that the new legislation has led to “a material adverse impact on the income and capital of landlords renting a property in Scotland”.

John Blackwood, Chief exec of the Scottish Association of landlords said: “While the Scottish government sees fit to raise council and housing association tenants’ rents, so social landlords can do repairs and improvements, they fail to realise that private landlords are faced with similar financial pressures.”

“The [recent] ministerial statement in Parliament and announcement, make it perfectly clear the Scottish government plans to continue with the eviction ban and rent increase restrictions in the private rented sector beyond March 31st. Landlords have had enough…We must stand united to protect our property rights by challenging this unfair legislation in court.”

Propertymark’s CEO Nathan Emerson said: “The private rented sector has been clearly singled out with complete disregard for the positive impact it provides. It is vital that we ensure that the residential property sector in Scotland is investible and that is why we have been left with no choice but to formally object to these measures with the Court of Session in Scotland.”

If all of this sounds like quite a mess, it’s probably because it is.

The scary thing is we know that the rest of the UK is watching what happens in Scotland right now. It may well be that what’s happening in Scotland will turn into the beta test

for more controls in the private rental sector south of the border, with the Renters’ Reform Bill proposal coming to mind for many. As a reminder, the Renters’ Reform Bill had numerous proposals, the main ones:

• Scrap section 21 ‘no fault’ evictions

• Create a register of landlords

• Introduce a private rented ombudsman to help enforce renters’ rights

• Make it illegal for landlords and agents to refuse to rent properties to people who receive benefits

• Give local authorities more power to enforce and protect renters’ rights

Or will the powers that be watch on and change their mind about some of the changes? Will the situation in Scotland get so bad, landlords cut their losses, perhaps even setting up shop in England, and everything really falls apart? Will the governments take note then? Well, that’s crystal ball territory, and I didn’t see England finishing 4th in the Six Nations so I’m currently returning my crystal ball to Aldi. What I will say, is if Duhan Van Der Merwe wants to move and build a property portfolio in England rather than Scotland, we’ll take him. That lad is a machine on the pitch.

Inness had some interesting thoughts.

“In most cases the private Residential Tenancy operates fine, I think the ongoing arguments down south about the removal of section 21 to be overly emotive. The market continues to operate in Scotland and personally, I will continue to invest.”