Throughout 2022, costs have been climbing to new highs in decades. Energy prices, food, mortgage rates, and rents are the top categories that have reached record highs, leaving many households in financial uncertainty. For Scottish tenants, a new rent freeze law has been introduced as an emergency response to the cost-of-living crisis.

In this blog, we’ll look at what the new rent rules are in Scotland, discuss whether England and Wales are likely to adopt the same legislation, and what this means for buy-to-let (BTL) investors.

Rent freeze in Scotland

The Scottish Parliament has introduced a new law around emergency rent freeze in the private and social rented sector. This is new government legislation aims to tackle the cost-of-living crisis for tenants facing rising rents, many of which have increased by as much as 30%. The new rules have been fast-tracked into effect and mean that most rents are now suspended until the end of March 2023, however, this could be extended. The rent freeze also applies to student accommodation and includes a temporary eviction ban.

This is good news for tenants who are unable to cover rising rents. It’s been found that, even before the cost-of-living crisis, 30% of Scots were struggling to pay their rent. Now that prices have climbed even higher and people’s incomes are taking a bigger hit than before, that number is now over 33%, with 70% feeling worried about future affordability. On top of that, Glasgow has been reported as one of the top regions in the UK for the highest annual rental price growth. The national average is 12.3%, and after London (17.8%) and Manchester (15.5%), Glasgow takes 3^rd place with an increase of 14.4% since last year. So, as many Scottish tenants battle with soaring rents on top of other increased bills, it’s easy to see how the new law will be beneficial for many renting households.

Could rent freezes be coming to England and Wales?

It’s not uncommon for England and Wales to follow in Scotland’s footsteps in terms of new laws and, whether it’s rent or mortgage costs, affordability is a nationwide issue. Between April 2021 and March 2022, the average rent in England was £795 – the highest it’s ever been. Not only have prices continued to spike over the last few months, but eviction notices have increased, too, so the rent freezes have been introduced as a short-term solution.

The private rented sector in England and Wales is currently unregulated. This means that landlords can change their prices at their own discretion. In the social housing sector, there are some controls in place whereby rents can only be increased by 1% over the inflation rate.

With prices rising uncontrollably, many people anticipate the possibility of a rent freeze transferring to the rest of the UK, with many people demanding it. In terms of social housing, the regulations around rent increases are already due to change in April 2023. In response to soaring inflation, the government is currently discussing the introduction of either a 3, 5 or 7% cap on rent rises to help tenants manage their payments. However, protests in London continue against the rise in social rent and service charges, with a call for more affordable homes to be built. Director of Generation Rent, Alicia Kennedy, comments: “Without a rent freeze and measures to stop ‘no-fault’ evictions, people will still face devastating decisions over paying rent or staying warm this winter, and many of them will lose their homes.” Saqid Khan also wants to introduce rent controls in the capital, claiming it will save Londoners £3,000 a year in rent and help prevent homelessness.

In Wales, Plaid Cymru has also called for rent freezes this winter as well as an eviction ban. Party leader Adam Price explains: “We want rents to be frozen, not people, who risk being unable to afford to heat their home, or worse, be forced out on to the street. Welsh Government has the power to stop this happening – they should use it.”

While nothing is yet confirmed for England and Wales, there have been several calls for rent freezes to be brought in, and now that Scotland has fast-tracked this new law, we could see the same regulations being rolled out soon in the rest of the UK.

How will this impact buy-to-let investors?

While freezing rents presents significant benefits for tenants with helping them manage payments, there are also some potential cons to this new programme. The gap in supply and demand is an ongoing issue in the UK and freezing rents could contribute to the problem further. In Scotland, some landlords have responded to the new law by removing their properties from the rental market, and a similar reaction could be expected if the law comes into effect for the rest of the country, which would intensify the lack of available homes.

John Blackwood, chief executive at the Scottish Association of Landlords (SAL) explains: “Landlords will not let a property in the knowledge that they will be unable to meet their own financial and maintenance obligations if their tenants don’t pay rent or their outgoings increase.” The reality is that the cost of living has affected everyone. As mortgage rates and maintenance fees go up, private landlords are facing larger bills for their regular expenses, which translates into higher rents. The severity of this also depends on whether they’re on a variable or fixed mortgage rate; variable rates fluctuate with inflation, so unless they fixed at a point where rates were lower for a long enough period, some landlords are currently being hit with rates as high as 6.16%.

Blackwood concludes that “instead of helping tenants pay their bills, the Scottish government has chosen to penalise people who have provided the homes politicians have failed to provide for decades,” suggesting that the government should be “encouraging landlords and tenants to work together to overcome financial hardship.” Ultimately, if the number of landlords continues to drop, tenants will be at the receiving end of that cause-and-effect. This means that fewer homes will boost demand and, therefore, prices, leaving the problem unresolved.

Is it still possible to generate profits from buy-to-let investing?

As inflation significantly outpaces initial predictions, many private landlords are left evaluating their position and selling up. While rents have shot up, rental yields have hit a record low earlier this year, which is predicted to continue into 2023. On top of this, insufficient supply remains an unsolvable issue and newly introduced tax rules have been contributing to landlords exiting the market, with the majority of retail investors admitting that BTL investing has lost its appeal.

Despite these downfalls, positivity towards property investing remains, and some experts continue to recognise property as a strong investment method. If you’re thinking about staying in or entering the property market, there are still ways to generate profit in this area. The profit potential will depend on a number of factors and, in the current financial climate, it’s worth thoroughly researching the following areas before getting on the ladder:

·         Determine between hands-on or passive property management

·         Gain a comprehensive understanding of your expected return on investment (ROI)

·         If you need a mortgage, examine the borrowing process, rates, and repayments

·         Understand your projected outgoings and running costs

·         Look into any tax changes that may apply to you

·         Check that you have sufficient reserve funds

How to generate returns from property

Investing in property can still offer its benefits to the right investor, but like any investment type, doing your homework is crucial. With expensive mortgages, new tax regulations, and tenant affordability issues – amongst several other challenges – you might decide that managing physical property isn’t right for you. For long-term security, you could look into a hand-off approach, which can still generate returns but without the trouble of owning a BTL property.

With Propiteer Capital, you can benefit from stable, fixed-rate returns with our Propiteer Capital Property Bond, so you know exactly what profits to expect and when they’ll be paid to you. Our bond consists of high-quality property projects in robust and transient locations across UK and Ireland, which are selected based on their projected incomes, offering the potential to be recession-resilient.

The Propiteer Capital Property Bond gives investors passive exposure to three core asset classes: residential assets, branded hotels, and high-value built-to-sell development properties. With a selection of terms and payment options, you can choose the investment that’s right for you with the added benefit of convenient diversification through our range of property types and geographical locations.

To find out more about the Propiteer Capital Property Bond, visit our website or contact our customer team with any questions. You can also stay up to date with our company news and news updates on our LinkedIn page.

Recommended Read: Hilton Exeter Goes Green with Solar Panels