The finance market for landlords in Scotland has undergone a seismic shift in the past 18 months. Tax policy changes, most notably the increase of the Additional Dwelling Supplement (ADS) to 8%, have reshaped the economics of buy-to-let (BTL) investment and forced landlords to rethink acquisition strategies. While single-unit purchases now face significant headwinds, opportunities remain for those willing to adapt. This editorial explores the challenges, solutions, opportunities, and alternative routes defining landlord lending in Scotland today.
The challenge: ADS at 8% hits single-unit economics
On 5 December 2024, the Scottish Government raised ADS from 6% to 8%, payable on additional residential purchases such as buy-to-let, second homes, and holiday lets. For context, a £200,000 purchase now attracts £16,000 in ADS, £4,000 more than before, compressing yields for smaller investors and making single-unit acquisitions far less attractive.
“Despite the Scottish Government admitting Scotland is in the midst of a housing emergency, they now go and deal another blow to landlord investors by increasing Additional Dwelling Supplement (ADS) from 6% to 8%.” Scottish Association of Landlords
The solution: small portfolios and ADS relief
One of the most effective responses has been buying small portfolios, typically six or more dwellings in a single transaction. Under current Revenue Scotland guidance, such deals are treated as non-residential for LBTT purposes and attract full ADS relief. This structure dramatically reduces tax friction and aligns with lenders’ appetite for professional, scalable borrowers.
Opportunities: lender recognition and negotiating power
1. Lenders are adapting
Intermediary updates and trade press confirm that lenders are broadening products for portfolio and limited-company landlords, often using manual underwriting to accommodate complex Scottish cases.
2. Bulk buying = better deals
Buying in bulk not only secures ADS relief but also strengthens negotiating power. Vendors are often willing to discount for a clean, single-transaction exit. It is not uncommon for landlords to negotiate a discount when buying portfolios from motivated sellers. The vendor could be a disillusioned landlord who has decided to sell off some of their stock. In some cases, we have seen large companies such as housebuilders who have bought stock as part of their part exchange for new homes strategy. If they are motivated to sell, there is often a good chance to negotiate a significant discount against open market value (OMV).
3. The 90% loan
Specialist lenders in the bridging and Buy to Let sectors can lend against the open market value in cases where there is a genuine discount. If a client is buying six properties with an OMV of £1m but they have negotiated a 20% discount for buying in bulk and settling quickly, the lender will lend against the OMV and not the purchase price. In this example, the buyer is purchasing for £800k and the lender is providing a 90% loan of £720k. This equated to 90% against the purchase price but only 72% of the value. These types of loans were once only available on bridging terms (notoriously higher priced, short-term loans), however, there are now lenders in the Scottish market who can offer this on standard Buy to Let terms.
Alternative routes: value-add, auctions, and planning gain
- Auctions for Discounted Stock: Auctions remain a prime source of properties needing refurbishment.
- Buy, Refurbish and Refinance: Specialist lenders dominate this space, offering bridging loans for auction completions and refurbishment programs.
- Planning Gain and Conversions: Auctions also surface commercial or mixed-use properties ripe for conversion.
Practical takeaways for 2025
- Stress-test single-unit purchases at ADS 8% before offering.
- Consider portfolio routes (6+) for ADS relief and non-residential LBTT rates.
- Leverage lender appetite for portfolio and limited-company deals; budget around 75–80% LTV for term BTL.
- Use auctions and refurbishment to create equity, then refinance to retain.
- Track policy changes, the LBTT review could reshape the landscape again.
