The days of the ‘dinner party’ landlord are gone, according to mortgage advisers in Scotland who have said operating in the space is now the preserve of professional portfolio landlords.
A combination of rising interest rates, tax reforms, and the Scottish government’s rent freeze and cap on rents have all converged to make the buy-to-let sector an unwelcome one for small landlords.
Speaking to FTAdviser, mortgage brokers operating in the space outlined what they see as the biggest issues and highlighted that while some are similar to those being experienced by landlords in England, the situation in Scotland is in a way more stark.
So much so that some are even seeing their clients choose to purchase investment property in England instead.
At the moment, the Scottish market is far less attractive than the north of England for investors Mark Dyason, Edinburgh Mortgage AdviceA number of mortgage advisers have laid the blame on the Scottish National Party, which is in its third consecutive term of power.
“The SNP’s government has been punishing landlords, which means landlords are exiting the sector, which means there is even less rental properties on the market,” Mark Dyason, founder of Edinburgh Mortgage Advice said.
Scotland made headlines when its government introduced a rent freeze last year, effective from September 2022 to the end of March 2023 in a bid to ease the burden on renters.
During this period landlords have been prohibited from increasing rent outside of limited circumstances.
More recently, the government has introduced legislation that means from the beginning of April, while landlords will be able to increase rents again, they will be confined to an increase of less than 6 per cent - or 50 per cent of their increased costs, whichever is lower.
This combined with rising mortgage interest rates made for the “perfect storm” for landlords.
Robin Purdie, director of Boarders Mortgage Hub Scotland, pointed to the “mini” Budget and said it really changed the outlook for buy-to-let on both sides of the border.
“It’s an all-out assault on the common landlord,” Purdie said about the current landscape.
Another difference between Scotland and England is the rate of the additional dwelling supplement.
The tax is charged on property that is not being used by the owner as a main residence.
Back in December the Scottish government raised the ADS from 4 per cent to 6 per cent in a move that mortgage advisers have described as a “nail in the coffin” of buy-to-let.
“In our conversations with people they often are not aware of the additional dwelling tax,” Purdie explained.
“Maybe they have a bit of extra money for example, and they want to get into buy-to-let.
“The first thing we say is ‘are you aware of additional dwelling tax? and the fact that it's 6 per cent’ and that quite often kills the thing stone dead before we even start to look at interest rates which are higher now.”
Dyason, whose firm is based in Edinburgh, agreed that the challenges facing landlords in Scotland were having a negative impact on the sector and disincentivising investment.
He explained that he has been having serious conversations with his clients and asking them: “why buy in Edinburgh when you can buy in Newcastle?”
“I wish you could buy a flat in Edinburgh for £100,000 but you can’t. You need to ask the landlord what it is they are after, is it yield or capital growth.
“At the moment, the Scottish market is far less attractive than the north of England for investors and that’s the danger for the government. When there is still an awful lot of demand for rental property, they will find it difficult to find people looking to be landlords,” Dyason said.
'Really tricky for first-time buyers'
At the same time, while the pressures being experienced by landlords are causing some to sell up, first-time buyers in Scotland have often not been able to benefit from this.
Matthew Smith, a mortgage and protection planner with Macleod & Maccallum in Inverness, explained there is limited support for first-time buyers at the moment who do not have access to some of the innovative lenders that are operating in England.
“The only government scheme up here that first-time buyers have got is the Lift scheme. There was a scheme a few years ago where £25,000 was given to you by the Scottish government which helped massively but when Covid hit that scheme got withdrawn.
“We’ve had Help-to-Buy in the past but that doesn’t exist anymore. So it’s really, really tricky for a first-time buyer to get on to the market just using their own resources,” Smith said.
“It seems to be the perfect storm almost. You have rents going up on new tenancies because anyone that is an existing tenancy is covered by the rental freeze, so it’s constraining the number of properties that are available for rent.
"And then you have properties coming to market that no one can buy because first-time buyers aren’t getting the lending they need.”
In terms of how the pressures on the sector might be relieved, there are no quick solutions.
However, Smith noted that one small change that might help ease the burden on landlords - and in turn renters - would be to change how ADS is collected.
Currently, it must be paid in an upfront lump-sum by landlords.
"Even if the tax was reduced slightly, or if it could be paid across multiple payments, I think that would help massively," Smith said.
He added: "I mean you can pay your income tax monthly, why can't the same be done with this?"
jane.matthews@ft.com
