By Marcus Di Rollo, lettings director at full-service legal firm Gilson Gray

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So far, the 2020s have seen a lot of change in Scotland’s housing market. Rents and house prices, surprisingly to some, went up considerably during the pandemic as people’s needs and wants from their homes changed.  

The rent cap introduced by the Scottish Government during 2022 aimed to control some of those effects. However, it seems to be widely accepted that the policy became self-fulfilling, leading to even greater rises in rents for many tenants and casting a shadow over the lettings market over the past couple of years. 

With the coalition that introduced the legislation now over, the Housing (Scotland) Bill making its way through the Scottish Parliament, and a new government in Westminster, the foundations of more change in 2025 have already been set. Here are the themes we believe will shape property next year. 

Supply-demand imbalance to remain

The rental market is still relatively buoyant. A big part of the reason for that is the perennial supply-demand imbalance in most of Scotland’s main property markets. Many landlords have decided to sell up due to a combination of factors, but that is only further restricting the availability of properties for those who want to rent. With little in the way of new development in recent years, this situation is unlikely to correct itself in the short term.  

Clarity over Private Rented Sector (PRS) policy

A big contributor to the mismatch between supply and demand in recent years has been the uncertainty over rent policy. But, with the Housing (Scotland) Bill currently going through the Scottish Parliament and expected to be finalised by late spring 2025, we should reach some form of conclusion next year. Hopefully that will provide enough clarity for landlords to make decisions and may provide the certainty needed for developers to deliver a new wave of homes. 

More discussion over eviction process

The second, perhaps less discussed, aspect of PRS policy is evictions. Arguably, this has been just as much of an issue as rents when it comes to assessing the viability of new development. As things currently stand, a tenant has to be in three months of continual arrears for the eviction process to begin. The process itself could take a couple of months and then an enforcement order follows, which may take several weeks more. That means potentially six months without any return on their asset, while covering costs – an unsustainable risk for many potential and current landlords. More discussion over the topic of evictions seems likely during 2025. 

Rents recalibrating 

The mismatch between supply and demand notwithstanding, there has been a definite shift in the market in tenants’ favour. The large rent increases of the pandemic and its immediate aftermath have slowed and there is evidence that, in some areas, there is even a bit of a correction underway. That said, broadly speaking, we expect rents to remain flat or go slightly up in most parts of the country. The temporary rules around rent increases are still in effect, largely limiting any rises to 6% – in some exceptional cases, that may go up to a maximum of 12%. But between 5% and 6% is likely in some of the stronger performing areas and lower elsewhere.

Uncertainty over short-term lets

Short-term lets have been a contentious issue since the introduction of new licensing and planning systems in Scotland. But, with so many variables still at play, it is difficult to know what will happen. Figures we recently obtained from the City of Edinburgh Council showed that, although licenses are being granted to homeowners renting out their properties as short-term lets, they are coming unstuck by planning, with 90% of applications being rejected. That will continue to place a big question mark over what happens in the city’s property market, both in terms of house prices and rents.

LLT

Councils slammed for ‘rigged consultation’ over ‘money making’ licensing

From this week, councils in England can introduce any selective licensing scheme they wish without first gaining the Secretary of State’s permission.

This follows an announcement by Housing Secretary Angela Rayner’s department last week.

While councils will now have more autonomy, they must still adhere to a mandatory 10-week public consultation period before introducing a scheme. Councils will also be required to provide regular updates to the Ministry of Housing, Communities and Local Government on the progress of their schemes.

The government claims the easier-than-ever licensing system is to improve housing standards but a prominent lettings expert says there’s an extra reason behind the change – to raise cash for councils.

Phil Turtle, a director of Landlord Licensing & Defence, says: “Any council can launch any selective licensing scheme they want with no need to get approval from the Secretary of State. All they have to do is one of their meaningless and rigged ‘consultations’ with almost always a totally unrepresentative sample of stakeholders, almost zero input from landlords or tenants and questions that don’t even hide the fact they are designed to get the answers the local authority needs to do what it intends to do anyway regardless of the opinions of stakeholders.

“The recent selective licensing ‘consultation’ by Leeds City Council was one of the worst examples with leading consultation questions this firm has ever seen.

“So, far from the private rented sector heading towards the national landlord database as a simple and workable alternative to selective licensing, we now are on the starting blocks for every council to require every rental property to be licensed under what will become 340-odd councils with 300-odd different licensing schemes.

“All with the covert aim of being able to criminally prosecute and fine landlords for breach of licence conditions – many of which in this firm’s experience constitute double jeopardy with exiting legislation, entrapment and councils offloading their legal responsibility for anti-social behaviour (ASB) onto landlords with no ASB skills or training and making landlords criminally responsible ASB in the entire area around their rental properties!

“Breach of a selective licence condition is a criminal offence with unlimited fines in the courts or councils can issue a civil penalty fine of up to £30,000 and keep the money for the cash-strapped council’s coffers.

“Also, that £30,000 fine is rising to £40,000 (and a minimum of £7,000) for most Housing Act offences under the Renters’ Rights Bill’s heavily upgraded enforcement provisions.”

He adds: “It looks clearly like the councils will use this power to introduce a scheme to boost revenue collection from licence fees and fines which all landlords and, ultimately, tenants, must pay. Selective licencing schemes in England typically cost around £1,000 (£200/year) compared to the far better scheme in Jersey that is only £30/year.

“This move is nothing less than the government giving away any vestiges of control they had over out-of-control Local Housing Authorities and giving the go-ahead for out-of-control local council money-raising schemes.”

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Rents being slashed as tenants hit affordability ceiling – Rightmove

Rightmove says the average number of enquiries to agents about each available property to rent is still nearly double the level in pre-pandemic 2019.

But tenants are now hitting an affordability ceiling, the portal warns.

Each available rental property receives an average of 11 enquiries, nearly double the 6 at this time in 2019. The winter is typically one of the quieter periods for the market. For context, earlier this year in the summer, agents were receiving 19 enquiries per property.

The number of available properties has improved 7% compared with this time last year, while the number of prospective tenants has dropped by 19%.

This improved supply-demand balance has contributed to a slowing in the pace of rent growth compared with last year.

Average rents outside of London are now £1,339 per calendar month, 4.5% above this time last year – that’s the slowest rate of annual rent growth since 2021 – while rents are 2% above last year in London.

Rightmove predicts that average newly advertised rents will rise by 3% both inside and outside of London by the end of 2025. 

Whilst the ongoing lack of available stock indicates further rent growth next year, there are signs that tenants are hitting an affordability ceiling and would not be able to meet significant rises.

Letting agents are having to reduce the price of more rental properties, with 26% currently seeing a reduction in the advertised rental price before finding a tenant, compared with 23% last year.

In addition, wages have already failed to keep up with rent rises, stretching affordability. Average UK rents have risen 40% over the last five years, whilst earnings have risen 28%.

Tim Bannister, Rightmove’s property expert, says: “There are two competing factors influencing rental price changes right now. 

“The ongoing imbalance between supply and demand is putting upwards pressure on prices. On the other hand, rent rises outpacing wage growth over the past 5 years has stretched affordability to extreme levels, and is showing in the increasing number of price reductions. 

“Whilst at a top-level, we’ve seen overall improvements in the balance between supply and demand, agents tell us they are still extremely busy and having to manage high volumes of tenant enquiries. 

“We’re therefore likely to see a more normal figure of around 3% growth in newly advertised rents next year.”