NEW RENT CONTROL LEGISLATION SPELLS POTENTIAL DISASTER FOR SCOTTISH PRIVATE RENTAL SECTOR Ken McEwan, CEO of McEwan Fraser Legal, explains why. Scotland could be facing a private rent crisis as many landlords are considering selling their buy to let properties as the Scottish Government prepares to legislate over rent controls.
The proposed legislation is designed to benefit tenants but has given little consideration to the challenges faced by landlords. Many landlords fear the legislation will penalise them, impact adversely on their interests and many are already considering drawing up plans to exit the market. The proposals, including rent controls, will ultimately reduce investment in property upkeep and will only reduce investment in property refurbishment programmes.
The proposed legislation which will impact on private residential tenancies includes rent controls, longer notice periods for tenants, increased security of tenure for tenants and no automatic right to secure the property at the end of a tenancy. But I believe this new legislation is going to have a very serious impact on residential rental investment properties in Scotland.
Already, we are seeing early indications of nervousness from savvy investors. And our experience is that some property investors are now looking outwith Scotland for investment opportunities. Further, there are also clear indications that some investors are considering changing asset class or changing the structure of their businesses as a result of the proposed legislation. Of course, it is important to have fairness and balance. But what the Government is proposing is likely to greatly penalise landlords the vast majority of whom are providing good quality accommodation for the rental market.
The plans also include increased security of tenure for tenants which will make it much more difficult for landlords to get their property back. The country has a housing shortage. There is a lack of both affordable housing and choice of suitable private rented accommodation. However, far from assisting the market, the new bill will only exacerbate the existing problems. In fact, there is a very real danger that these ill-thought-out proposals will actually contribute to a reduction in the available supply and drive up demand.
What is more, the rent control plans come at the same time as the Westminster Government is about to abolish the 10 per cent wear and tear allowance and the phased reduction of interest relief at the higher rate for buy to let landlords - which equates to a terrible double whammy for property investors. We will end up with the ridiculous scenario where heavily geared investors are going to make a loss on their buy to let portfolio, but will still be landed with a tax bill.
Many amateur property investors who have two or three buys to let properties - which make up the large majority residential landlords - are as yet oblivious to what’s just around the corner but 15 per cent of all mortgages are in the buy to let sector. The sad reality is market research is totally at odds with the Scottish Government’s determination to control rents while the vast majority of tenants are satisfied with their landlord in the private sector.
When you look ahead to how the new legislation would work in practice you can imagine two identical properties within the same block, one has been totally refurbished while the other has not been touched for 20 years. Yet they will both have the same restriction to any rent increases.
Landlords may well get involved in lengthy disputes with rent control officers on what represents a fair market rent and I can see many disputes spilling over to the courts. This new legislation offers little to assist landlords, tenants or the market. The Government needs to urgently rethink the legislation as no one is going to actually gain from this new legislation, including tenants.