MortgagesMar 13 2023

Scotland's buy-to-let sector facing 'perfect storm', say brokers

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Scotland's buy-to-let sector facing 'perfect storm', say brokers
Houses overlooking the city center in Aberdeen, Scotland, on Tuesday, July 19, 2022.(Emily Macinnes/Bloomberg)

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 Advice

A 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.