It used to be said that “when the South of England sneezed, Scotland caught the cold”.
But that was back in pre-devolution days. Nowadays, with the Border no longer artificial, it could be said that “what Scotland does today, England will do tomorrow”.
As examples, I cite the smoking ban and the levy on plastic shopping bags – both introduced by Holyrood and taken up by Westminster shortly thereafter. This trend, it would appear, is now shifting to the residential rental sector.
Last year, an act passed by the Scottish Parliament made it unlawful for a landlord to serve a tenant with a notice to quit unless the landlord had: decided to sell the property, carry out a major refurbishment of it or make it the landlord’s main home.
South of the Border there is no such law, but opinion is moving in that direction, with a UK government consultation having closed last month. It is widely believed the outcome will be a minimum of three-year tenancies, contrasting with the present situation in which the vast majority of leases are for six or 12 months.
And it seems the government is aware of the current direction of the wind. According to the pressure group Generation Rent, its proposals to restrict a landlord’s right to evict are just as widely supported by Conservative voters as others. Among people who voted Tory in the 2017 general election, support for limits on rent increases was said to be 72 per cent while 56 per cent agreed that tenants should have their moving costs paid if evicted to allow the landlord to move in or sell on.
As Generation Rent has not provided details of the depth and strength of this survey, it is difficult to say how accurately it reflects overall public opinion. However, it is clear that many younger professionals, who might be termed “natural Conservative voters” are now renting rather than buying (and increasingly through choice rather than necessity) so it seems only natural that the current government in Westminster will wish to appear more “tenant-friendly” if for no other reason than there are votes to be harvested from this source.
So, subject to increasing (and income-reducing) regulation in both Scotland and England, where does this leave landlords?
Well, to quote Corporal Jones in Dad’s Army, my advice would be: “Don’t panic!”
Overall returns from residential rentals has always been a combination of capital growth and rental income. Whatever holds sway depends on the economic mood of the country at a particular time: sometimes rental levels remain static while capital values soar; at other times it is the other way round. Given the present level of tenant demand, landlords should be enjoying high levels of rental income, which they are but only in gross terms; a series of reductions in tax reliefs available to landlords have cut deeply into net income.
Nevertheless, in all but the most economically depressed parts of the country, capital values are generally rising above inflation. So even if a landlord simply breaks even on net rental income, the rise in the capital value of his or her property will easily beat any savings returns from cash deposits.
And let us not forget that while the taxation legislation, passed by Westminster, has cut net income from rentals, the interest rate on buy-to-let mortgages and re-mortgages is still laughably cheap by historical standards.
Of course the wise investor knows that, somewhere along the line, there are good reasons to “jump ship” and that on occasions this even applies to something as solid as stone and mortar. So given the current political and economic uncertainty now might be an appropriate time for an older, experienced landlord to cash in on the substantial level of equity built up over an extended period – although each case will depend on the circumstances.
But for others (ie the majority) there is no reason not to continue on their journey. The flight should end in a soft landing even if there is a bit of turbulence along the way.
David Alexander is MD of DJ Alexander