The LandlordBuyer team is frequently asked ‘is 2023 a good year to raise the rent?’ and our answer is always the same: every year is a good time to review – and possibly – raise the rent.
Is rent going up in the UK?
According to the Office for National Statistics, rents paid by private UK tenants rose 4.2% in 2022. As for 2023, data analysis from HomeLet suggests factors across the rental market and the wider economy suggest rental values will continue to rise overall throughout 2023.
Is a rent review due?
When was the last time you reviewed the rent attached to your buy-to-let or property portfolio? There are many reasons landlords have delayed raising rents in recent times.
Some may have taken a softer stance during the pandemic and put off rises while tenants found themselves under health and financial pressures. Others may feel their existing rent is already at the local area ceiling. In today’s climate, we also know landlords feel a sense of trepidation over making rent more expensive during a cost-of-living crisis.
It is, however, best business practice to review rent levels on an annual basis. If you haven’t reviewed your rent in the last 24 months, it’s quite possible that your rent has fallen behind current values.
It’s worth noting, however, that any rent increase should be mutually acceptable between the landlord and the tenant. A fair rent is better than no rent, and tenants can challenge a rent rise if they think it’s unreasonable or even illegal.
Why are landlords planning to increase rents?
Two recent surveys indicate why landlords are expected to increase rents. A report released by Finbri in February 2023 found 52% of landlords are looking to raise rents if the Bank of England’s (BoE) base rate increases to 4.5%.
Later that month, new data from Landbay’s quarterly survey found 68% of landlords plan to raise rents if their mortgage rate goes up when they come to remortgage. When analysing the finer details of the responses, the Landbay team found that in the coming 12 months, 44% of landlords said they expect to increase rent by 6-10% if their mortgage rate increases. Of those who intend to raise rents, 70% will do so for both new and existing tenants.
A rent review now will ensure rental income will be enough to meet more expensive mortgage payments, and cover costs such as service charges, ground rent, maintenance, management and insurance products.
Improving profit margins is essential to healthy yields and maximum borrowing ability, especially as some lenders now specify that the property needs to have 140% cover based on an interest rate of 5.50%. A low rent and a low yield can hamper the chances of remortgaging successfully and turning a profit.
Make your move before May 2023
If you are thinking of raising the rent, it’s worth bearing in mind the system may change very soon. The Government has announced that The Renters’ Reform Bill will be introduced in this session of Parliament, which means in May 2023. When in force, landlords will only be permitted to increase rents once per year. Additionally, they must give a minimum notice of two months.
How do I notify my tenant of rent increase UK?
If a rent review clause has been included in the tenancy agreement, a landlord can increase the rent at certain, pre-set times during the fixed term of the tenancy, without issuing a Section 13 notice. It’s wise to insert a rent review clause into every tenancy agreement as this ensures landlords can adjust the rent to cover rising costs.
If there isn’t a rent review clause in the tenancy agreement, the official channel for increasing the rent is issuing a Section 13 notice. A landlord can issue a Section 13 notice during a fixed term tenancy but the rent will only increase when the fixed term has ended.
LandlordBuyer is on hand to help landlords plan their next rent review, calculate their yield and analyse figures to establish whether a buy-to-let remains profitable. Our property buying service provides an option for landlords who are finding it difficult to achieve viable yields.
Q. Can I raise the rent during a tenant’s fixed term?
A. A landlord can only raise the rent during a tenant’s fixed term if: the tenant agrees to a new rent; they sign a new agreement or there is a rent review clause in the contract.
Q. What does a rent review clause look like?
A. A rent review clause generally appears in a tenancy agreement in one of two ways. It may be a general open market review, such as "the landlord will review the rent in January each year and give the tenant 1 months’ notice of any increase". Alternatively, it could prescribe an increase, by detailing "the rent will increase each April in line with the Retail Price Index (RPI)".