Landlords looking to increase rents?
Landlords looking to increase rents!
I don’t know if you’re like me but I haven’t been a landlord who increases rent every year. Some landlords do this as do some letting agents on your behalf. Others review rent every 2 years. The amount by which rent is increased usually depends on the market and to some extent the area where you rent out property. In some places such as London there were steep increases but rents are actually falling in many parts of London as tenants cannot afford them. Where property is at a premium, rents may rise above the average and if you hold high-end property you may be able to charge above market value.
Rents have risen by small amounts per year for a while now, but this is likely to increase due to all the additional costs the UK Government has imposed on landlords which will bite a bit harder during and after this tax year if you are a higher rate tax payer. I don’t know who the government thought was going to pay for these costs but in general, businesses can absorb some costs but eventually these are passed on to the consumer. In this instance, a buy-to-let landlord is the business and the tenant the consumer. A recent survey of surveyors estimated average rents would rise to 3% a year for the next 5 years but who knows what will happen in the coming years as some landlords may struggle to meet the new tax costs.
In the area where I let my properties, rent for two bedroomed properties has increased by 20% over the past 5 years – which is a year on year rise of 5%. Most rents don’t go up by that much per annum.
How to increase rent
First of all, think carefully before increasing rents for current tenants because if you go over market increases, you may drive them out. This obviously leads to void periods which in turn leads to losses. If you rent to people on benefits, remember that many councils now cap rent payment allowances and people may struggle to find the additional costs.
Student rents are generally static because the majority of landlords with HMOs already have high yields and students will rarely rent at a premium.
If you are a landlord who doesn’t look after your properties and your tenants are already unhappy, you need to ask yourself is you are in the right business. The majority do not fall into this category I’m pleased to say and if you are a good landlord, most tenants will not object to reasonable rent increases.
If you are in a position of needing to increase rents there are rules you need to follow:
- If there is a clause in your AST saying you will not increase rent during that term then you cannot do so until the AST has expired. There should be a clause about rent reviews one way or another.
- You can only increase rents once a year and only if your tenancy agreement allows or has expired
- You need to give the tenant notice that you are going to increase the rent. Depending on how often a person pays rent, that is the amount of notice you need to give – for most tenancies this will be a month
- Give the tenant notice in writing of rent increase and the exact amount
- If the tenant doesn’t agree to a rent increase you will have to serve them with a notice using form 4 – you can use this form anyway if you prefer
If you are a landlord looking at increasing rents check out what the average rent in the current market is for your type of property, in your rental area. A quick search on one of the property portals will give you the idea. Check out the properties that are available and if yours matches or betters these, then you are going to be alright increasing rent as long as you are reasonable and your tenants are happy with your property.
Don’t overdo rent increases or it will backfire and you may end up with void periods that were not necessary. If you are a 20% taxpayer don’t jump on the bandwagon for the sake of it, weigh up the pros and cons before increasing rent of current tenants. Always review rents when tenants move on because you may be charging below market value.
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