Mike Dailly: Are you ready for the private lets bubble to burst?

How did this happen? Almost half a million homes have been lost from Scotland’s social rented sector since the right to buy was introduced in 1980. While the Scottish Parliament ended that right last July, the impact coupled with the growth of the buy-to-let mortgage market has fuelled the private let sector.

The UK buy-to-let market has increased by 40 per cent in less than ten years, resulting in a massive influx of small landlords with one or a few properties entering the market. All of this has come at a cost.

A recent Joseph Rowntree Foundation report found that household poverty in Scotland had increased significantly in the private rented sector over the last decade. In contrast, the social rented and homeowner sectors witnessed a fall in household poverty.

This translates to an additional 140,000 private renters of working age being pushed into poverty over the last decade. Rent now consumes a quarter of the income of such tenants.

Meanwhile, there are 150,000 households on housing waiting lists in Scotland with around 34,000 homeless applications each year. If Scotland has a housing crisis the private rented sector has not solved it.

Many people buying a flat to let out will have thought it was a relatively easy way to create an income stream and have an asset that will appreciate over time. But what happens when things get a little more complicated?

The Bank of England has long been worried about the over heating of the buy-to-let mortgage market. When the base rate goes up – and do not forget lenders often use this opportunity to reprice above the interest rate rise - will the bubble in the buy-to-let market finally burst?

If you look at private let rent increases in the last six years in Scotland the Central Belt has seen rent rises of double the rate of the Consumer Price Index (CPI). That is a 25 per cent rent increase against CPI of 12.6 per cent over six years.

All of this comes at a time when the Scottish Parliament has just passed a new regime for private lets, the 2016 Private Housing (Tenancies) (Scotland) Act, which is due to come into force at the end of this year. With the sector being supported by half a billion pounds in public money through housing benefit each year, the Scottish Government took the view it was time to give private tenants more security of tenure.

At present, most short assured tenancies operate on a contractual monthly term after the initial six months, which means a lease can be brought to an end on one month’s notice to quit. The 2016 Act will abolish the contractual mandatory right to evict a tenant.

In its place the Scottish Parliament has given life to a long list of mandatory eviction grounds or what are in effect as good as mandatory ones. Under the new Act, a landlord will be entitled to evict if they want to sell the property, fail to pay their buy-to-let mortgage, refurbish the let, or decide to live in the property.

Even the classical ground of eviction for rent arrears has had the bar lowered. In future only the equivalent of one month of rent arrears, where there has been at least some rent arrears over three consecutive months, will be required to evict.

When I gave testimony on the Bill to the Scottish Parliament I described the new Private Residential Tenancy as like having a “zero-hours” contract on your home. Security of tenure is illusory with 18 new grounds of eviction.

There are some redeeming qualities. The new law introduces scope for a local authority to apply to the Scottish Government to designate an area as a “rent pressure zone”. If granted, rent increases in a rent pressure zone would be capped at CPI plus one per cent (or more).

Some elected members at Glasgow City Council are already debating the need to use these new powers in particular areas of Glasgow, and there will undoubtedly be calls for these powers to be used in overheated and overpriced student areas across Scotland.

Mike Dailly is a solicitor advocate at Govan Law Centre.