Raising the rent: why, when and how explained

Life has got more expensive for the majority of us and a review of finances is frequently needed to ensure we’re balancing the books. This is especially true for landlords who, for the first time in many years, will find mortgage rates have doubled since they last looked at home loans.

At the time of writing, the Bank of England’s base rate was 4.5% and with experts not ruling out further hikes, the future of finance looks a little unsettled. For landlords funding a new buy-to-let or remortgaging an existing rental property, a rising base rate may make repayments more expensive. It’s a possibility weighing heavily on the minds of property investors. 

Two separate surveys illustrated the intentions of those refinancing their rental properties amidst a rising interest rate. A new report by Finbri discovered that just over half (52%) of landlords will look to increase rents if the Bank of England’s base rate increases to 4.5%, which has now been achieved.

A separate survey put the number of landlords on alert to raise rents even higher. Landbay’s quarterly survey found almost seven in ten (68%) landlords plan to raise rents if their mortgage rate goes up when they come to remortgage.

Costlier mortgage repayments are not the only reason a landlord may want to increase the monthly rent. The cost of running a buy-to-let compliantly has risen in line with our wider economy, with materials, labour, parts, goods and insurances becoming more expensive. 

The rental market has moved upwards too. The most recent HomeLet Rental Index shows the UK’s average rental price for a new tenancy rose 9.9% between April 2022 and April 2023. A rent review ensures a landlord is realising the full potential of his property among its competitors.

A landlord, however, can’t simply decide to raise the rent. There are strict protocols to follow, depending on the type of tenancy and what has been stipulated in the tenancy agreement.

Tenants on periodic tenancies: it is usually only possible for landlords to raise the rent annually if a tenant is on a periodic tenancy. This must be agreed by both the landlord and the tenant, and be confirmed by a written agreement that both parties sign. If a landlord wants to raise the rent without getting into dialogue with the tenant first, they must issue Form 4 of a Section 13 notice, which forms part of the Housing Act 1988, and give one months’ notice. If a tenancy has a yearly tenancy, the landlord must give 6 months’ notice.

Tenants on fixed-term tenancies: the landlord can only raise the rent in line with what is set out in the tenancy agreement, or when the fixed term ends and a new tenancy is negotiated. Prescribed rent rises that are detailed as clauses in tenancy agreements usually follow one of two paths. A rent review clause 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, the clause could be linked with the Retail Price Index (RPI) and state “the rent will increase each April in line with the RPI”.

Rent raises in Scotland: there is a different process for landlords to follow if the property is in Scotland. Tenants with a ‘private residential tenancy’ must be sent a Rent Increase Notice, and the law states a landlord must give the tenant at least three months’ notice before they charge a higher rent. There may also be an upper limit on how much the rent increase can be if the property is in a rent pressure zone. 

Regulated tenancies: there are special rules for increasing the rent where a tenant is on a regulated tenancy – speak to us if this applies to you.

Ones to watch

Although there has been a delay to the Renters’ Reform Bill being published in Parliament, its introduction is still expected in 2023. The Bill does contain changes to the way rent rises can be applied in the private rental sector.

The Bill proposes that arbitrary rent review clauses are banned; that rent increases will be limited to once per year and that the current one month notice period will increase to two months. In cases where a tenant has challenged a rent increase through the First-Tier Tribunal, the Government wants to prevent the tribunal from increasing the rent beyond the amount the landlord initially requested.

If you would like us to perform a rent review on any buy-to-let you own, or if you need help with tenancy agreements, please contact our lettings experts.