Scotland has overtaken London as the area with the fastest rental growth rate, according to the latest Zoopla rental market report published yesterday (15th September).
The data showed Scotland’s annual rental growth hit 12.7%, with lets in Edinburgh and Dundee up by 15.6%, while Glasgow saw a rise of 13.7%.
Zoopla pointed to rent control rules in the area as a contributing factor; in October last year, Scotland introduced a temporary rent cap, stipulating that private landlords can only raise rents by 3% annually for existing tenancies until at least 30th September.
However, according to the real estate company, Scottish landlords are choosing to increase rents when properties are vacant — when the 3% rent cap does not apply — to maximise the rent for new tenancies to cover increased costs, as opposed to during the life of the tenancy.
BTL Insider asked industry professionals whether landlords across the UK would go the same way as Scotland and raise rents once their properties are vacant, and how much they would hike prices on tenants annually as a result of the Renters Reform Bill — which would allow landlords to increase rents once a year.
Roger Morris, director of sales and distribution at Tandem Bank, shared his view as a landlord: “The introduction of rent controls in Scotland seems to have had a significant effect on the market.
“Landlords, faced with a 3% cap on rent increases for existing tenants, may indeed be incentivised to raise rents by the maximum allowable amount at annual renewals, especially since they have seen huge increases in their cost of funds.
“Similarly, the practice of resetting rents to the full market rate when properties become vacant, as seen in Scotland, could lead to substantial increases in rent, potentially impacting affordability for tenants.
“I am seeing the same when I re-let a property in England, with the letting agent explaining the current unprecedented demand and tenants trying to outbid each other to secure their much-needed family home.
“Regarding the Renters Reform Bill, its progression in parliament is very uncertain, but if it were to become law, it might exacerbate the situation.
“The potential for landlords to maximise returns within the legal framework, coupled with the current high interest rate environment, could indeed lead to higher rents, making it more challenging for families to find affordable homes and provide the much-needed security and stability for their children’s education.
“It’s crucial for policymakers to strike a balance between tenant protection and landlord incentives to maintain a healthy rental market and ensure affordability for all.
“The evolving landscape of rental regulations and market dynamics requires careful consideration to achieve these goals.”
Nathan Emerson, CEO at Propertymark, commented: “It is no surprise that Scotland has seen the largest rise in rent increases in Zoopla’s latest report due to the introduction of rent controls. They have played a huge factor in this shift as they hit hardest those that they actually intend to help.
“Rents have risen due to the lack of growth in the sector and by raising costs for landlords, this is introducing further disincentives for investment and more costs for landlords to try and claw back and break even through raising rents.
“The same stands for landlords across the rest of the UK and, at the opportunity of a vacancy or renewal, it will be no surprise that landlords will be forced to raise rents to the fullest in order to recoup costs accrued during the tenancy and moving forward.
“The issue is set to worsen in Scotland especially, and if the Scottish government does not act quickly and learn the lessons of history by reevaluating its approach, it may be too little too late.”
Jeremy Leaf, north London estate agent and a former residential chairman at RICS, also said: "Putting a sticking plaster on a large wound rarely works; as has been shown in Scotland, trying to keep rents down on one side only pushes them up on the other, causing more problems than it solves.
"Of course, the aim for everyone is a decent supply, particularly of affordable accommodation for those most in need. Private landlords are needed in the public sector, but they have choices too and if we keep alienating them, they will simply continue selling with the result that rents will go up and become even less affordable. The danger is, of course, that such mistakes will be repeated in England.
"We would like to see more supply and more homes built but that isn’t going to happen overnight — trying to apply a short-term fix such as this could create bigger issues.
"The overwhelming majority of landlords recognise the value of a good tenant and that this is more important than obtaining the highest possible rent — but landlords, as well as tenants have been suffering from substantial rises in the cost of living, not least mortgage and building costs, and complying with regulation.
"When it comes to new lettings, some landlords want to achieve market rent if they can, but there is an affordability ceiling and only so much a tenant will pay, except perhaps in a corporate situation where the company is fitting the bill.
"There is some nervousness about the Renters Reform Bill, but it hasn’t really started its journey through parliament yet and it’s not clear as to what the costs will be for landlords, and this won’t show itself in rents until that time. Some landlords are nervous about the outcome – hence the number of sales – but others are hanging in there, understanding the long-term value of rental property."
