Rental briefing: targeting landlords means less choice for tenants

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The latest statistics on rents in Scotland show they are at a record high, after the fastest month-on-month growth on record.

Your Move’s Buy-to-Let Index for May, which has just been published, showed average residential rents in Scotland have shot up 1.3 per cent from April.

This increase means that the average rent now stands at £549 per month.

There are variations around the country but as an average this is the highest Scottish rents have been ever been, surpassing the previous record set in July 2015.

This month also marks five years since the Scottish National Party gained an overall majority in the Holyrood.

Since then, average rents have seen a 7.9 per cent (£40) upswing from £509 per month in May 2011.

The two factors are not unconnected.

Rents are rising rapidly as a result of the new Land and Building Transaction Tax (LBTT) surcharge for buy-to-let properties.

This tax hike has dissuaded landlords from investing in the sector leading to a shortage of homes to rent, compared to the demand for housing.

With the limited supply of rental properties, potential tenants have been forced to compete to secure homes, pushing up rents.

The introduction of this anti-landlord legislation from Holyrood has ensured the cost of the policy has hit tenants hardest.

However, the rent control policy in the Scottish Government’s private tenancies bill will only treat the symptoms, not the cause of rising rents.

By limiting the rent that can be charged on a property, becoming a landlord will become less appealing, limiting investment and forcing many to consider leaving the sector.

This will lead to an even greater shortage of homes to rent.

In addition, without the potential incentive of higher rents, landlords will lack the motivation and finance to improve the quality of their properties.

The government needs to look at incentivising landlords to increase the supply of rental properties in Scotland.

With more homes available to rent, tenants wouldn’t need to compete for properties and rents would be more affordable.

Our figures also show that Scottish tenant arrears have climbed for the third successive month.

Tenant finances improved over the winter months, but it appears spring has been a tougher test.

With employment in Scotland falling by 48,000 between February and April, some tenants may be struggling to make ends meet.

However, on a positive note our research shows fewer tenants are falling into serious rent arrears, where they are more than two months behind in their rent.

With increasing costs of renting and less employment in Scotland, tenants will need additional support from landlords. But my feeling is that the government’s policies are instead turning the screws on landlords; driving a wedge between them and their tenants.

The government appears to have adopted a strategy of scapegoating landlords, instead of addressing the low wage growth, limited housing supply and state of the Scottish economy.

In terms of landlord finances, compared to last year, total annual returns have dropped severely.

In absolute terms, the average Scottish landlord has seen a paper loss of £3,782 in the past year.

The drop in annual returns has been caused by a fall in average house prices compared to May 2015.

The average gross yield on a buy-to-let property in Scotland stands at 4.0 per cent in May 2016, a slight 0.1 per cent uptick month on month.

However, the full impact of the LBTT surcharge, the reduction in mortgage tax relief and private tenancies bill are yet to be felt.

It appears landlords may now be heading into choppier waters, with the storm of legislation heading their way.

At a time when the number of people looking for homes to rent continues to rise, landlords will need to weather this tempest, if they are to meet Scotland’s housing needs.

Brian Moran is lettings director at Your Move Scotland