Rising interest rates and steep mortgage repayments have made 2023 a challenging year for landlords, and many have increased rent prices to help optimise their property’s return on investment. If you’re also considering raising rent to remain competitive in the local market, it’s important to remember that many tenants are also navigating a difficult rental market and a wider cost of living crisis.
As a landlord, you are responsible for providing affordable housing and ensuring the rent you charge is fair, realistic, and in line with average local market rates. All this whilst also ensuring you maintain a profitable investment – It’s a fine balancing act!
So, before you up the rent on your property, just make sure that your reasons for doing so are justified, that the new rate is fair, and that now is the optimal time to do so. Choose the wrong time to increase rent, and you risk ruining your landlord/tenant relationship, running into expensive void periods, or even damaging your reputation as a landlord.
In this article, we’ll explore some common reasons for increasing rent, learn when you can legally do so, and the optimal time to proceed.
Rent Increases in 2023
According to the HomeLet Rental Index, the average rental price has increased by 9.56% between October 2022 and October 2023, setting a new record high at £1,283/month.
Amidst a housing crisis, the escalating cost of living, and soaring demand for rental properties, today’s rental market is undoubtedly challenging for both tenants and landlords.
While it is tempting to capitalise on the market’s upward trajectory, now, more than ever, landlords need to question the morality behind rent increases.
Before increasing rent, consider the reasons behind the decision and ensure they are justifiable in the current climate. Most importantly, make sure they are fair and in line with average rental prices within the local area.
Reasons to Consider Increasing Rent on a Property
When increasing rent, it’s important that you can justify the new price. Usually, multiple factors prompt a landlord to review the price they charge for rent. Whether inflation is rising, or you’ve recently spruced up the property, these factors can contribute to the value of your rental property and the amount it is fair to charge in rent. In this section, we’ll break down the different reasons you may consider increasing rent to help you evaluate whether a rent hike is justifiable.
If you’ve recently invested in renovating your property, you may have increased its market value and tenant appeal. Significant upgrades like a new kitchen, bathroom, or energy-efficient windows can make the property more appealing to tenants and justify a rent increase.
Local Market Rates
If you’ve noticed that the price of rent in the local area is climbing, now could be an opportune time to increase rent. However, it’s important to ensure that your rates remain competitive and reasonable when compared to similar properties in the neighbourhood.
It’s common for landlords to increase the price of rent in line with inflation. However, take care when doing so, as tenant’s wages do not rise at the same rate, so it could potentially cause affordability issues. Use a rent affordability calculator to check if your new rate is affordable for your target demographic.
A booming rental market combined with a short supply of available properties can put landlords in a strong position to increase rent. High demand often means tenants are willing to pay more, but it’s still important to ensure rent remains fair and reasonable.
If amenities in the local area have improved – perhaps a new school has opened, public transport has improved, or a new shopping centre has been built – then the desirability and value of the property could increase too. This could present a valid reason to adjust your rent accordingly.
If you’ve avoided increasing rent over recent years because you’ve had a long-term reliable tenant, then when this tenant leaves, it could be a good reason to review and increase the rent on the property.
Rising Maintenance Costs
If you have started paying out more on the cost of repairs and maintenance for the property, then you may be justified to increase the cost of rent to help cover these expenses.
Risks of Increasing Rent on a Property
While increasing rent may seem the most obvious and straightforward way of boosting your return on investment, it can have drawbacks. It’s important to weigh up the potential risks of raising rent before deciding if it’s the right move.
Increasing rent is never popular with tenants, which can increase the risk of experiencing expensive void periods where your property isn’t generating income. Sometimes, increasing the rent price can cause existing tenants to leave sooner than they would have had you left the rent as it was. Raising rent can also lead to longer void periods if the new rate doesn’t align with your target market’s expectations. Void periods can be costly and have a significant adverse effect on cash flow.
Losing Good Tenants
Good, reliable tenants can be hard to come by. If you’ve got a tenant who pays on time and looks after the property, then you may want to think twice before you bump up the price of rent. Increasing your rate can rub tenants up the wrong way or make the property unaffordable, motivating them to look for somewhere else to live. Void periods and advertising for new tenants can be expensive and time-consuming, so it may be worth holding off increasing rent until any long-standing tenants leave.
Impacting Your Reputation as a Landlord
Your reputation as a landlord can make or break your rental business. Regularly increasing rent, especially if your property is already at the higher end of the local market, can lead to a negative perception of you as a landlord. A poor reputation can make it more challenging to find new tenants in the future and could even lead to negative reviews popping up online.
When is the Right Time to Increase Rent?
Ideally, the best time to raise rent is always between tenancies. Making changes to the price of rent during an ongoing lease can be complicated and potentially put strain on the relationship between you and your tenant. However, waiting until the end of a tenancy may not always be feasible, especially if you have long-term tenants.
The most important thing to remember when considering a rent increase is to always conduct thorough market research and ensure that you are justified in putting the price up. Compare the rental rates for similar properties in the same area to understand where your current pricing sits – are you on the higher or lower end of the scale? You can also check the Rental Price Index to gauge annual rate changes and help guide your decision.
It can also help to consider seasonal fluctuations in demand when deciding the optimal time to increase rent. If rental demand peaks at a specific time of year, timing your rent increase to coincide with this season could be a strategic move, as any vacancies should be easier to fill then.
Legal Considerations for Rent Increases
As well as considering the appropriate time to increase the rent according to your circumstances and the rental market, it’s also crucial to remember that legal regulations govern rent increases. Failure to adhere to the correct legal procedures could result in tenants successfully challenging the rent increase, and you could even face penalties or legal action.
Let’s learn more about the circumstances under which you can legally increase rent under a periodic or fixed-term tenancy.
Periodic Tenancies (also called rolling tenancies)
For periodic tenancies, that is, those that roll on from one set period to the next, i.e. week-to-week or month-to-month, landlords must give at least one month’s notice of a rent increase. The exact amount of notice required depends on the details of your tenancy.
To formalise the increase, under Section 13 of the Housing Act 1988, landlords must issue tenants with a Section 13 notice. A Section 13 notice allows the landlord to increase rent without the tenant’s written agreement.
During a fixed-term tenancy, landlords can only put the rent up if a rent review clause in the tenancy agreement allows them to do so. If there is no clause, the landlord must wait until the fixed term ends. If you want to have the option to periodically review rent, consider including a rent review clause in your tenancy agreement.
If your tenant agrees to the new rent price, the next step is to either create and sign a new fixed-term tenancy agreement or a written agreement specifying the new rate.
Finally, in many cases, the law only requires landlords to give tenants one month’s notice of a rent increase. However, most tenants would prefer to be given more notice than this to give them time to prepare for the change. Giving tenants as much notice as possible and providing clear and transparent reasons for the increase can help you maintain good relations with your tenants throughout the process. If you decide that now is the right time to put the price up, read our Landlord’s Guide to Setting the Right Rental Price for guidance on what to consider when determining a competitive but fair rental price.