This is an important time for the buy-to-let market and the wider private rental sector for all manner of reasons. To say there are a huge number of growing pressures on this space would be something of an understatement.
From the increase in rates be they Bank Base Rate, swap or product, to the increase in the cost of living, to the lack of the supply in the PRS, to the introduction of a rental freeze by the Scottish government, to the potential for more stringent energy-efficiency measures for all rented properties, all these issues come together right now and have to be figured out by all stakeholders, specifically landlords themselves, their mortgage advisers, and us as lenders.
I’m writing this just before the new Chancellor, Kwasi Kwarteng, bring his ‘ad-hoc’ Budget to Parliament and therefore I’m not sure if there will be any measures or policies announced which may determine a change of direction for any of the above.
However, what I do know is that landlords are – on the whole – generally acquisitive and ambitious for portfolios, but they are certainly not going to put their money where their mouth is, if they continue to see profits/incomes hit by these variety of factors and by further government intervention.
Talking of which, I have had some time to digest the Scottish government’s decision to freeze private rents north of the border, and my mind has not been changed one iota that this is the wrong decision at the wrong time, and is likely to bring further problems for Scottish tenants in the form of falling supply and, ultimately, rising rents.
Detail is scarce on how the Scottish government intends to introduce (and police) this measure but, you would not need to be a policy genius, to work out that this is likely to end in tears.
For example, not only is there a freeze on rents to be introduced but also a moratorium on evictions. Not only will we see Scottish landlords unable to increase rents to deal with increased costs but, presumably, if tenants decide they are not going to pay during this period, they won’t be able to evict those non-payers either.
I’m struggling to see how, in a sector which is already short of supply, this doesn’t end up with fewer landlords offering fewer properties to the Scottish PRS. Take away the ability of a landlord to evict a non-payer, and their ability to charge a market rent in order to cover all their costs – which have been on the rise for any number of years – and you leave many landlord owners with little choice but to sell up.
Heads of landlord groups, trade bodies and associations are already providing many examples of their members talking along these lines, and the fact the Scottish government did not consult any of these prior to making its announcement, perhaps tells you everything you need to know about the veracity of such a policy.
My other concern here is not just about the potential for such a policy to be introduced in other areas of the country, but also around what measure the Scottish government is using to determine the success (or otherwise) of this policy?
At the end of March next year – should that be the actual end date which seems wholly unlikely – it will deem that no Scottish tenant had their rent increased and no-one was evicted. Whether that is truly the case remains to be seen, however, the ‘success’ of such a policy is only truly going to be revealed in the months and years after it has finished.
A year after the end date, how will PRS supply have been impacted? What will lower supply mean for rents? We know exactly what it means in a market with no intervention, but what about after? How much will rents have increased to make up for the period when landlords were not allowed to increase them? How many non-paying tenants will have been evicted and at what cost?
The ‘success’ can’t just be judged on the period of the freeze/eviction moratorium, it has to be on the medium to long-term impact on the Scottish PRS, tenants, and landlords? History tends to show us exactly what the result of rent freezes will be – lest we forget, this has been tried before and ended in spectacular failure. In fact, in almost every example, the supply of rental property available was pretty much decimated to a degree where the policy was stopped.
However, perhaps the Scottish government believes this time will be different? What I do however foresee is that the end of March certainly won’t see the end of this policy. And, in my view, the longer this goes on, the greater damage it will inflict to the overall market. If we thought supply north of the border was a problem now, we ain’t – in my opinion – seen nothing yet.
Steve Cox is chief commercial officer at Fleet Mortgages