It’s been a tumultuous year for the private rented sector (PRS) however we were hopeful of ending on a high. The Scottish Government’s decision to increase Additional Dwelling Supplement (ADS) was therefore deeply unwelcome.

So, the question we have for you this month is should you be contemplating some property decisions in December?

Despite hailing an apparent improvement in relations between the PRS and the Scottish government (Is the Scottish Government finally accepting the importance of the PRS?) we have to accept that it’s not all plain sailing yet for would-be investors.

So, applying more than a few decades of experience in the buy-to-let market, we’ll see if buying property in 2025 is a good idea.

A very brief look back

2023 was not a good year for the PRS, or for homeowners in general. As interest rates soared on the back of the Mini Budget, the cost of borrowing skyrocketed (relatively speaking) making financing property much more costly.

In Scotland, landlords faced restrictions on rent increases and evictions until the end of March 2024. The cost of living remained higher than previously. This was not a happy time for anyone, especially investors and landlords.

However – change was on the way. Lenders started targeting property investors with improved offers, property started to sell at much closer to home report values and as a consequence investments began to look more promising.

The Bank of England reduced their base rate for the first time in years – firstly to 5%, and then to its current rate of 4.75%. So, for property investors and anyone contemplating a buy-to-let, 2024 ended on an upswing.

Where we are now

On the face of it, the property investment market is in a much better place and should continue to improve. Should. Such a great word, implies so much yet guarantees nothing!

South of the border the Renters Rights Bill continues its journey through Parliament, with the promise that, unlike the Conservative’s bill which was intended to address such matters, this one will end up on the statute books.

How that will affect the market is yet to be seen.

In Scotland, the worries that the 2025/2026 budget announced on the 4th of December 2024 might harbour bad news for the sector were borne out, with an immediate increase to the Additional Dwelling Supplement.

Already doubled to 6% from the 2019 rate of 3%, this has now risen to 8%. This means that on a purchase of an additional property, say a buy to let, with a sale price of £250,000, the Land and Buildings Transaction Tax (LBTT)will be £20,000.

Timothy Douglas, Head of policy for Propertymark made the following observation:

“With the huge demand for private rented property and long-term rent control measures contained in the Housing Bill, the Scottish Government’s decision to raise Additional Dwelling Supplement under Land and Buildings Transaction Tax from six to eight per cent is quite simply wrong and out of touch with the housing needs of Scotland.

Ultimately with tenancy rent caps planned and impending minimum energy efficiency rules for private rented property, raising yet more taxes on the private rented sector will do nothing to tackle the housing emergency and only raise rents further and put the burden of these costs on tenants.”

The Scottish government had seemed to be a bit more open to the benefits of the private sector as it desperately tried to overcome its own housing shortage, and while the PRS cannot replace public sector housing, if encouraged, it can help.

This decision to increase ADS may make you question whether the Scottish Government has a proper grip on its housing policy.

Looking forward

That was all a bit of a downer however all is not doom and gloom. The ongoing housing crisis means that the private provision of rental homes remains a vital part of the market.

The fiscal situation, at least as far as buy-to-let investment is concerned, has stabilised to some extent. Finance, by way of mortgages, is more affordable than it was 12-18 months ago.

House prices, although rising, have slowed down of late, meaning that the cost of investing in the BTL market is more favourable for investors than it has been.

Demand isn’t going to lessen any time soon. Lack of housing stock is plaguing the United Kingdom, not just Scotland, and resolving that conundrum will take considerable time and effort.

In the meantime private landlords have the opportunity to make a substantial contribution to the lives of those seeking good-quality, rented accommodation.

While the increase in ADS was far from welcome, the bigger fear, that the government might do away with Multiple Dwelling Relief (MDR), which would have caused major issues, hasn’t come to pass.

As it stands, prospective landlords and property investors looking to expand their holdings can still enjoy tax benefits by buying six or more properties at once. But there is no escaping that this raises the bar to investment for some.

Advice from the property pros

It is important to remember that investing in property is overall a long-term strategy. As we have seen all too often, the short-term demands of governments can frustrate and infuriate landlords.

Introducing a measure which will undoubtedly dissuade some would-be investors during a period of intense pressure on the housing market could be seen as counter-productive, because it is.

So, should you really consider buying property in 2025? In short – yes. Property investment is always worth your consideration, even if you ultimately decide that it’s not for you.

Property prices continue to rise as evidenced by the latest report from ESPC. Additionally rents across the UK continue to rise, offering good returns although rises have slowed somewhat.

The Office for National Statistics states; “Average rent for Scotland was £969 in August 2024, up 7.6% (£68) from a year earlier.”

The change in ADS, while increasing the cost of investing, doesn’t decrease the potential of buy-to-let as a long-term investment – the value of property tends to weather economic squalls well.

All of this suggests that investing in property is still a valid route to good, long-term returns, and if you can afford to invest in a portfolio of properties, MDR makes it more advantageous from a tax perspective than buying single properties.

In summary…

The increase in ADS was not the Christmas present the PRS was looking for, but it’s the one it got. Whilst unwelcome, it doesn’t sound the death-knell of the buy-to-let market.

The best way to look at it is as an additional, one-off cost. Other factors which determine the attractiveness of the PRS as an investment have been moving  in favour of landlords and investors.

2024 has been a better year from landlords and investors overall, and hopefully this will continue. Without a doubt the rental market needs landlords who provide good quality homes – this isn’t going to change in the foreseeable future.

Although certain parts of the press would have you think otherwise, investing in buy-to-let property is a social good. Tenants are not simply unfortunates who cannot afford to buy – many actively choose renting as it suits them better.

The demand is there, and if you invest wisely the returns, both short and long term are there. As with any other investment, doing your homework and understanding the market before committing are critical.

Get in touch to discuss the market in general, what kinds of properties might suit you and any other questions you have about the BTL market.

Here’s to a prosperous 2025!

Written by Ross MacDonald, Director of Sales & Cofounder of Portolio

Get in touch on 07388 361 564 or email to [email protected]