Find out how to raise the rent on your properties when the market rises
You may have heard on the grapevine that the cost of property rentals has increased.
And you would be right.
Find out how you can increase the rent on your investment properties.
You may have heard on the grapevine that the cost of property rentals has increased.
And you would be right.
The reduction in the supply of properties in the private rented sector has caused an increase in monthly rent prices. Many landlords have decided to sell their rental property investments, cashing in on a rising property market and running into the sunset with their newly found equity.
This has left many tenants in the unenviable position of moving out and finding elsewhere to rent. But each time a tenant looks to move on, there are fewer properties that the tenant can choose from. Like a game of musical chairs at a children's party, there are fewer options each time the music stops. But there are not fewer tenants. So they are all fighting for the one property, or chair, that is remaining.
The result of this fight over one property is an increase in value. And so, rental properties have seen a rise in value like properties for sale have.
And with the increase in interest rates, landlords are now seeing their mortgages increase, resulting in their monthly profits decreasing. So, to make up for that shortfall, there is a desire to increase the rent.
This is possible whilst you have a tenant in situ, you don't need to serve an eviction notice or ask anyone to leave, but there are parameters for increasing the rent which you need to bear in mind.
When…
When increasing the rent to an existing tenancy, you need to know at what times this is possible within the confines of your tenancy agreement. If your tenant has only been living there for 3 months, then you will likely have to wait a while before you can increase. But if this is the case, you are probably charging the correct market value rent anyway, so you shouldn't need to worry. Often, assured shorthold tenancies will have a clause to allow increases to the rent annually.
How to…
You'll need to serve a Section 13 notice to increase the rent on a tenancy. There is a different notice depending on your agreement type, so it's best to speak to a letting agent to ensure that you serve the right one. There are also notice periods that you need to give, usually 1 calendar month. If you do this process incorrectly, your increase will not be valid, and the tenant will continue to pay the old rent amount, so you must seek professional guidance to get this done correctly.
How much by…
This is a tricky one and depends primarily on you, the property, the tenants and the relationship that you have together. As well as the amount of rent they are paying currently. If they are £300 below market value each month, it will be a considerable shock to increase by such a large amount in one go. It may be better to increase incrementally rather than in one fell swoop.
But you mustn't increase above market value. If your tenant feels that the increase is unfair, they have the right to a tribunal to assess the property's value and whether the price you want to increase the rent to is a fair amount. Of course, you also run the risk that they might move out, leaving you without any rent and the cost of remarketing to replace the tenant.
The best advice here is to tread carefully. You don't want to rock the boat and lose a good tenant unnecessarily, but you need to cover your costs and expenses, so be upfront with the tenants and communicate with them fully about the situation. And I would suggest discussing it with them before posting a rent increase letter without warning, as this will undoubtedly cause upset and frustration.
If you are considering increasing the rent on your tenancy and would like some guidance on how to do it properly, get in touch with our team of letting experts today.