The removal of temporary rent controls tomorrow may make buy-to-let investments more appealing, says Auction House.

From April 1 the temporary rent restrictions placed on existing tenancies in Scotland will be lifted. This means that landlords will be able to increase mid-tenancy rents to market levels for the first time in two years.

In 2022, the Cost of Living (Tenant Protection) Scotland Act introduced temporary controls to support the rental market. This initially took the form of a rent freeze, before being adjusted to a 3% cap on annual rent increases for existing tenancies. A 6% rise was only possible in special circumstances.

The cap has contributed to a tough market for landlords: “Scottish landlords have faced many legislative and financial challenges since the introduction of temporary rent controls,” commented John Loudon of Auction House Scotland.

“The combination of the cap with higher mortgage rates and the recent increase of the Additional Dwelling Supplement to 8% has resulted in reduced numbers of investors entering the market or expanding their rental portfolio. We’ve also seen an increase in the number of landlords exiting the market.”

However, the upcoming removal of this cap will give landlords and property investors breathing space.

“The lifting of rent control will hopefully boost landlords’ confidence in the property rental market, allowing them to realise a more acceptable level of return on investment” adds Loudon.

To increase rents, landlords must still provide three months’ notice to tenants. They must also be prepared for formal tenant challenges, although this will only favour renters if the rise is deemed to exceed the market rate. 

If it doesn’t, Rent Service Scotland or the First Tier Tribunal will set the rent at the open market value, which could be higher than the increase proposed by the landlord.

“Landlords will also still have to consider whether a substantial increase would bring about a void period. However, while the rental market remains strong, this lifting of the cap is broadly regarded as a positive for the private rental sector.”

Loudon predicts a flurry of activity to take place. The caps are eventually likely to be replaced by more permanent measures, but these are unlikely to come into force until 2027, giving landlords time to invest in new properties and create a long-term strategy.