Monitoring the freeze: awaiting update on Cost of Living (Tenant Protection) Act

If the Scottish Government wants to address housing issues, Build to Rent at scale will be crucial,” says Rettie & Co’s Director of BTR.

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A freeze on investment

By Gillian McLees, Director of BTR at Rettie & Co, Scottish Chair of the UKAA, and S.P.F. RIM Member

During the cost of living crisis, interest rates have increased, with the Bank of England base rate now at 3.5%, up from 0.1% in December 2021. This increase in interest rates, coupled with the surprise rent freeze introduced by the Scottish Government in September, may continue to force small-scale private landlords out of the sector.

“While the Cost of Living (Tenant Protection) Act was conceptualised with good intentions, what has transpired since the temporary measures were introduced is a hesitancy among investors, and a hike in rents on newly let properties. If the temporary measures are to be extended or amended post March 2023, the private sector investors, who accounted for 70% of new dwelling completions in 2021, may feel less enthusiastic about solving our housing crisis.” o

Dan Sayer, Development Services at Rettie & C

The RICS national survey results show a significant reported decrease in new landlord instructions across the UK, particularly in Scotland. As small-scale private landlords exit the sector, the well documented and severe undersupply of homes may provide an opportunity for institutional investors to meet this housing demand. However, they will first need clarity from the Scottish Government regarding any future rent controls, temporary or otherwise. While uncertainty remains regarding the Cost of Living (Tenant Protection) Act emergency measures, the Scottish Government has recently confirmed that the rent freeze will be removed for social housing in April 2023.

Understandably investors are concerned as to whether the ‘rent freeze’ will be extended past March. We are monitoring the situation very closely and are awaiting the announcement expected on more information regarding private rental controls today (12 January 2023). The clarity regarding social housing is welcomed, and we look forward to advising our clients with more clarity going into 2023. Uncertainty kills investment. We hope that the Scottish Government will continue to engage with all stakeholders and look at the evidence to agree an optimal solution for all, we are keen to part of the solution to the housing crisis.

“We are keen to obtain the clarity this announcement will give the entire industry. We want to continue to be part of the solution to the housing shortage while creating a best-in-class resident experience.”

Amanda Rennie, Operations Director, Moda Living

Strong demand for rental properties

With the cost of living crisis and increased interest rates pushing would-be first-time buyers out of the sales market, theoretically, we should expect to see increased demand for rental properties.

Despite average rents increasing in Scotland over the last year, for the first time since 2012, the average rental cost is now cheaper than the cost of the average mortgage. Tenants who were thinking about making the move from renting to property ownership may decide to remain in their current rented property until mortgage products become more affordable.  

While average rents are more affordable than the average mortgage, the ONS Opinions and Lifestyle Survey provides an insight into the impi that the cost of living crisis is having on people across the UK. The latest results show that four in ten renters surveyed between June and September found it difficult to afford their rent payments. When compared with the previous survey of March to June 2022, the results show that across all tenures, adults are finding it increasingly more difficult to afford their energy, rent and mortgage payments, further strengthening the need and demand for more affordable housing provision.

At Rettie & Co we have seen strong demand for rental properties, particularly affordable rental properties. In mid-December, we launched a small number of additional mid-market rent properties at Harbour Gateway and Harbour Point in Newhaven, Edinburgh. In less than a month, we received over 1,200 completed unique applications from 670 households.  

Overall, the current market factors provide an opportunity for institutional investors to meet current housing demand in a time of constrained supply. Amid the cost of living crisis, the mortgage crisis and the housing crisis, the case for affordable housing provision is clear. If the Scottish Government wants to address some of these issues, Build to Rent at scale will be crucial. We are eagerly awaiting further announcements from the Scottish Government regarding rent controls after March. Whatever the outcome, the Build to Rent team at Rettie & Co are prepared for every eventuality, and we will be updating our clients as soon as further information becomes available.