CML warns Scottish Govt that rent controls could have adverse effects

Taylor Scott International News

Proposals by the Scottish Government to introduce new rules for the private rented sector could have a negative impact on buy to let lending, according to the Council of Mortgage Lenders. It has sent a detailed response to a consultation document issued by the Scottish Government, and while it recognises that some of the proposals will benefit the sector, others are likely to have a detrimental effect. In particular the CML is concerned about rent controls. In its reply it says that rent levels in Scotland are complex picture and while some areas such as Aberdeen and Edinburgh may have seen above average increases in rent levels these are very much as a result of demand exceeding supply. It points out that these areas are also seeing above average house price increases for the same reason and the long term solution has to be to increase the supply of housing in areas where this is an under supply. ‘We believe that the introduction of rent control is likely to dampen appetite amongst institutional investors to invest in the sector, will impact adversely on the availability of buy to let mortgages, will result in higher rents being set at the outset to compensate for lower rent increases during the rental term and could impact on quality if a rental yield cannot be achieved to allow continued investment in the property,’ the CML says. ‘Overall we believe the introduction of any form of rent control is likely to reduce investment in the sector thus reducing the supply which is badly needed to meet housing need. Currently we do not believe there is any need for the Scottish Government to take any action as there is no evidence base which would justify it doing so,’ it adds. The CML explains that while there are a number of models which could be selected in terms of rent controls, any such model would have to be an effective, transparent and a fair way of increasing rents so that it was attractive to both landlords and tenants. ‘A careful balance would need to be struck between landlords’ expectations over future rental yields and the expectation of tenants,’ it adds. The CML document welcomes the development of a model tenancy agreement and modernised grounds for possession. ‘However we believe that a number of the proposals contained in the paper are likely to have the unintended consequences of both reducing investment in the sector and the supply of private rented sector housing,’ it points out. These include the removal of the no-fault ground for re-gaining possession, the removal of the ability to continue tenancies on a month to month basis at the end of their term and potential controls over rents. ‘We believe that landlords need to have confidence in their ability to end a tenancy when they need to do so otherwise this may discourage future investment in the sector. Existing arrangements provide flexibility for both landlords and tenants…. Continue reading →

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