Srutiny of the Scottish Housing Regulator’s (SHR) latest financial projections warns that while headline forecasts suggest a return to stability, the sector’s heavy reliance on rent to cover spiralling costs exposes landlords to an under-recognised strategic risk.

The SHR’s projections up until 2029/30 assume above-inflation rent increases and consistently high collection rates.

At the same time, 74% of tenants report concern about the future affordability of rent, and the sector faces ongoing challenges with Universal Credit migrations.

Between 79 and 81% of landlord income is expected to come directly from rent, according to the SHR.

However, this sits against a backdrop of sustained cost-of-living pressures, rising borrowing and refinancing costs, construction inflation, compliance expenditure and billions of pounds of decarbonisation investment.

“Recent history has taught us that our operating environment can evolve quickly,” said Chris Magennis, Mobysoft regional director (Scotland). “This can have huge cost implications as we’ve seen with damp and mould investment. Landlords need to be able to adapt, and quickly. As financial headroom is being squeezed, we will see business models being increasingly reliant on the ability to maintain very high levels of rent collection.

“Our own analysis highlights how even marginal changes in rent collection rates can have material consequences for landlords and the lives of tenants.

“Our own statistics show that since 2019, landlords using our RentSense rent arrears and income collection software achieved an average income collection rate of 100.11% compared to 99.70% without RentSense.

“Over next five years, that variance of less than 0.5% equates to £41.83 million in projected rent not collected. That’s £307,597 per landlord every year not being spent on people’s homes and communities. That £41m figure covers the majority of the £52.3m projected drop in cash reserves for the sector from 2024 to 2029.”

The SHR has reinforced its message on the importance of quality data and risk management, stating that “robust data is essential for RSLs to achieve their strategic objectives and safeguard tenants.”

Magennis added: “Rent collection performance can no longer be viewed solely as an operational issue. With limited scope to diversify revenue, even small fluctuations in arrears performance risk squeezing already tight financial headroom, reducing capacity to invest in existing homes and limiting resilience to future economic shocks.

“Boards and executive teams should be seeking assurance on stress-testing income under lower collection scenarios, strengthening early warning indicators for arrears, reviewing strategies for recovering former tenant debt, and ensuring income teams have the capacity and data intelligence required to respond to a rapidly evolving operating environment.”

Read the full Briefing Paper here.