Why you should regularly review rents

Many landlords, particularly accidental landlords with only 1 property, often post on social media such as Facebook or LinkedIn or newspaper websites (in the comments section) boasting about how they have excellent relationships with their tenants and how they don't increase the rent on a regular basis. In fact, they think this is a badge of honour and something that should be commended.

Whilst on the one hand it is noble, and it may be something that some landlords can afford to do if they don't have a mortgage on their buy to let and/or don't require the rental income for their day-to-day living, in this blog I want to share why landlords should review, and increase, rents every 1-2 years.

Firstly, let me make it clear that I do not advocate increasing rents every 6 months (assuming you grant 6 month tenancies and renew them and the end of the fixed term). I also do not condone landlords who increase rents purely because their own mortgage rate increases, or landlords who try to force a rent increase less than 12 months after the previous rent increase. Regular rent increases does not mean it is fair or just to whack up the rent by £150pm or more, as some landlords (reported in the media frequently) seem to do.

In my view, any rent increase should come down to (a) the market rents in the area of your property, (b) the state/condition of the property, and (c) the nature of the landlord-tenant relationship. Rent increases should not be carried out simply because a landlord's own mortgage rate has increased, or the landlord's cost of living has increased.  They are irrelevant to the market rent and would be dismissed if the tenant challenged the rent increase at the first-tier tribunal.

Here are the reasons I would increase rents regularly:

1. Keep up with market rents

Anybody that has been a tenant or a landlord in the private rental sector over the last 10 years will no doubt be aware that rents have gone up considerably over that period of time. The rise in rents of course depends on the location of the property, the standard of the property, as well as local economic factors of supply and demand.

Broadly, there has been a shortage of supply and an increase in demand for rental properties which has caused this upward trend in rents. No matter where you are located, you should have seen an increase in the market rent. For example, 3 bed terraced houses in Nottingham rented for £550pm in 2015 and the same properties would rent for between £950-£1000pm today (assuming that they are in good condition and well maintained). If you rented your property 10 years ago and were lucky enough to have the same tenant stay in the property for that whole period, and you didn't increase the rent in that time, then you would be £400pm below the market rent by now. Annually you would be losing out on at least £4800, just on one property. If you were fortunate enough to be a portfolio landlord and had multiple properties which were under rented, then you would be losing out in significantly more. 

As a landlord, you may want to ‘reward’ long-standing and good tenants, however at the same time you shouldn’t want to discount the rent to such an extent. In my view a 10-15% discount from the market rent is a sufficient amount, but that still requires you to review the market rents periodically.

2. Ensure that your tenant is not 'stuck'

Whilst a tenant would no doubt be more than happy with no rent increases in years, in reality that will then lead to them being accustomed to only paying a certain amount of rent each month, even where similar properties on the same street rent for considerably more due to the increase in market rents. This means that if either (a) the tenant needs to move due to personal circumstances (moving for work or having a family meaning that they need a bigger property) or (b) you need to regain the property in order to sell it, then the tenant may be ‘financially stuck’ i.e. unable to afford to move due to the big disparity between their current rent and the market rent for other properties.

As a landlord, you could end up in a situation where your property is overcrowded (e.g. 3 kids and 2 parents living in a 2 bed house) because your tenant can’t afford to rent a bigger property. Worse still, if you did want to regain your property in order to sell, you may end up having to go through the whole eviction process because the tenant wouldn’t be able to afford to rent elsewhere. This is both costly and time consuming.

3. Keep up with rising costs of maintenance/repairs

Unless you’ve been living under a rock in recent years(!), you will no doubt be aware that repair and maintenance costs have increased dramatically – not just the cost of materials but also labour costs.

This is thanks to the various external pressures on suppliers and contractors (government interference in forcing prices to rise!). So if you do end up having a costly repair or maintenance job at your rental property e.g. a boiler replacement or new roof which costs £thousands, you’ll find that it will wipe out any profit you’ve made for potentially years!

If you have kept your rents low and not increased them in years, the contractor/supplier isn’t going to reduce their costs for you! It is therefore in your interest to increase rents so that you can afford to pay for repairs and maintenance. It’s better for any maintenance costs to be paid from the rental profits, rather than having to fork out from your own savings/personal income – which is one of the main reasons I encourage landlords to keep a ‘reserve fund’ set aside for each rental property.

4. To ensure you can meet your compliance costs

Sadly, our current and previous governments have hammered landlords in the last decade with increased regulations and tax burdens and it is becoming much less profitable to be a landlord these days.

Not only do we have to pay for landlord insurance as well as the regular and routine compliance issues (EPC, gas safety certificate, electrical installation condition reports), nowadays a lot of local councils are implementing selective licensing schemes affecting all landlords renting properties in certain areas. These licences can cost landlords over £1000 in some cases.

When it costs £thousands every year to be a compliant landlord and to keep your properties well maintained and in good repair, it would be financially foolish to keep your rents low and pay these additional compliance costs out of your own pocket. In my view, a large factor in the increase in market rents in recent years has been the widespread introduction of selective licensing schemes (and the renewals of those schemes after 5 years even where there is no objective justification!) and the increased red-tape and tax changes that have cost landlords so much more to operate their rental business. It makes sense that if a business suffers from increased overheads and cost of compliance, then it naturally has to increase the cost of its goods or services. Being a landlord is no different, so keeping rents low will not be a long term path to success.