Rent increases on the cards as legislation begins to bite

Bob Cherry says laws will have unintended outcomes

Araft of new legislation has been introduced by the Scottish Government relating to the residential lettings sector and the consequence of these various changes will be significant.

In the past it was relatively straightforward to become a letting agent.

Now agents must apply to join the government-run Register of Letting Agents by 30 September and must undertake professional qualifications before applying.

Agents need not only to have specific knowledge to qualify, but must also have experience. In our view this is welcome.

In addition, there is also a new code of practice to which all reputable letting agents will already, to a large extent, be in compliance.

Aspects include financial standards – in particular, ensuring that each client’s revenue is held separately.

Letting agents are also required to take steps to establish the legal owner of the property, to counter potential fraud.

The creation of the First Tier Tribunal is also new and replaces the private rented housing panel, as a much quicker way to resolve disputes between landlords and tenants.

My experience of it so far is that this is the case.

Tenants who complained to the tribunal about a repair not being finished found the issue was rapidly resolved.

The tribunal is also responsible for proceedings relating to rent arrears and recovery of possession, formerly dealt with by the Sheriff Court, which should prove beneficial to landlords.

Tenants have also benefited recently from the private residential tenancy (PRT) legislation which offers increased security of tenure.

This is a boon for tenants, as landlords can only evict a tenant on specific grounds and may have to give 12 weeks’ notice.

Landlords may only increase rent once per year and must give tenants three months’ notice in writing.

Reduced tax-relief on mortgage interest and the stamp duty surcharge for second home owners has reduced the likelihood of people buying a second home as an investment.

PRT also allows councils to apply to Scottish ministers to have an area designated as a rent pressure zone (RPZ) if rents in that area are rising too rapidly.

In our view this is bound to happen in the near future, in soughtafter areas of Edinburgh initially.

If an area is designated as a RPZ, then the amount by which a landlord is entitled to increase the rent each year will be capped at a level set by Scottish ministers.

Obviously, the Scottish Government’s priority is to help first-time buyers.

To a certain extent, ministers will welcome the fact that the proportion of property being bought as a second home has reduced and is likely to diminish further.

However, the end result for tenants will be increases in rent in the not-too distant future.

Already the supply of property is quite restricted across the whole country and tenants must act quickly to secure a decent rental property.

Supply will probably become more limited; the inevitable consequence is increases in rent.

This may result in the private rental sector shrinking as a proportion of the Scottish property sector.