To increase the rent?

[Dickensian]

Just that really. I'm an accidental landlord. Have lovely tenants - an elderly couple in their late seventies who have lived in the small house for 4 years. They are my first ever (and last) tenants. I will sell the house once they are no longer there. They love the place and expect to be there 'forever'. Before moving in, they had fallen on hard times for various reasons and would never have passed official rental agent tests, and a previously undeclared dog appeared (it's fine), but have always paid their rent on time. I have never increased the rent, they pay what they did when they moved in (£850). I don't have an agent but looking at market rents in my area I would say that £1000+ is the going rate for a similar type of property..

I actually have no idea about their financial circumstances but presume they wouldn't be able to/ want to buy the house.

The problem is that my BTL mortgage deal is coming to an end. From making a small profit, I will start to make a loss.

The UK inflation calculator shows that prices in general have increased more than 25% since they moved in.

My gut feeling is to look at an increase of 8-10% and absorb some of the cost myself. Or not increase it at all, but (being brutal) they might live in the house for another 20 years so that would be 20 years of loss which isn't very sensible.

So which option would you take:

1. No increase at all (and make a loss) YABU
2. Increase by 8-10% and review again in a couple of years
3. Increase by 8-10% and start reviewing every year to keep pace with inflation
4. Increase by more than 10% (up to 25% even) to bring rent up to market rent and nearer the price it was in real terms 4 years ago. Review annually in line with market rent.

You have to increase, you’re not a charity. I’m charging £200 under market rate and am looking to increase but I’d hate to lose excellent tenants so am delaying as long as possible.

Are you making a loss though? Surely if your mortgage is being mostly paid by your tenants and you pay the outstanding bit, you are still increasing your equity. When you pay into a mortgage it could be seen as a bit like putting money into a savings account. How you would feel about this would depend on how much you are having to pay, how easily you can afford this and how you came to be in possession of the house in the first place. Also- how many years are left on the mortgage? Because after that, every penny of rent will surely be profit (barring taxes and expenses).

I appreciate it is a very difficult decision to make though. You don’t want to feel like the evil landlord kicking elderly people out into a precarious situation. But on the other hand, you don’t want to financially ruin yourself or make yourself feel like you are responsible for these people when factors are out of your control.

if this were me (not a landlord), I would be tempted to put the rent up a bit to help cover the mortgage and revisit it when the mortgage term was up for renewal.

You won't actually be making a loss though OP, will you? You own the house and whatever they pay is contributing to your mortgage-even if it's not covering all of it; it's always going to be a win for you rather than a loss. If you increase the rent it will be the tenants that are losing money so you don't have to contribute any of your own money towards your own mortgage.

Increase the rent 5% explaining how you are affected by the mortgage rate hikes. You don’t want to be trying to sell in the current market, and if they go and you can’t sell, you are paying mortgage on an empty property. A much bigger loss.

I would also be open with them that you are making a loss and plan to sell within the next year or so. This is not their forever home.

I would also consider what they are likely to do. If they cannot afford to pay current private rental rates, will they need to sit in your house until evicted, and thus jump the Council Housing list. If this is their only option, it could be painful/expensive for you. Do you have landlord insurance?

I would do 3. But check - aren’t there laws controlling rent increases? Not sure.

This seems the most sensible option. But make sure you have given them plenty of notice. Check the rules for what you can do in terms of increase and notifications for where you are in the UK. As housing is devolved the rules vary across the UK.

Not quite true. Changes in taxation rules a few years ago mean that you cannot claim tax relief on certain costs. Effectively you pay tax on how much rent you receive, not on overall profit.

You usually need to change your mortgage to a BTL usually if you are renting it out. You certainly need to I form the bank.

OP - you say you have a BTL mortgage, is this interest only rather than repayment? Most BTL mortgages are set up as interest only.

Do you actually want to continue being a landlord, or do you want to sell and invest the money elsewhere?

If you want to continue being a landlord, I wouldn't chase the top of the market. The two biggest financial risks as a landlord are of the tenant trashing the house or withholding rent and needing eviction. So I would value tenants with a reliable income who look after the property.

Is their income reliable e.g. a pension? Or are they relying on benefits which may or may not be reliable? Even lovely people would stay and wait to be evicted if they become unable to pay their rent and are reliant on the council housing them.

Setting your price, I'd remember to include not just the mortgage payments, but also to build up a contingency fund for repairs and if they do stop paying rent.

Also a word of caution that getting an undisclosed dog I'd regard as a bit of a red flag. Yes people do get undisclosed pets, and I agree that pet owners can be good tenants, but an undisclosed dog is a bigger step than say a cat.

Also a bit of a red flag thinking they will stay in the house forever. I've never been a landlord myself, but amongst friends and family I've known people who have seemed very nice tenants.... until they are asked to move out. As in their mind the house was theirs for as long as they wanted it and they have reacted very very badly, and refused to move. I've also known cases where these tenants have done unauthorised "improvements" or changes on the house, as they regarded it as theirs.

Ultimately I suppose it depends if you want the role of being a landlord, which comes with emotions and dealing with people's homes and the hassle of repairs and ultimately can mean being hard hearted, or would rather sell up and invest in the stock market or similar.

If you do want to continue being a landlord I'd increase 8-10% and discuss you may increase further in future years.

Best in mind the EPC requirements may increase to a minimum of C soon which will cost you money if property below this. And that in general government is moving in direction of making being a small private landlord less lucrative. So you may end up needing to increase rent in future.

Also thinking ahead with their age I'd bear in mind they may want to make adjustments to the property in future, they may not be able to manage the garden one day, in future there may be only one of them living there with less income. It sounds hard hearted, but that's why I've never become a landlord, as I haven't fancied making money out of people's homes and needing to think this way!

Of course you need to cover your cost - unless you have do much spare that it doesn’t matter to you.

@Nevermind31 yup. Though if you only own one property, some banks will allow you to stay on a repayment rather than interest only mortgage.

Also it sounds like they couldn't afford to pay market rent locally, so if you did ever need to sell up you might have quite a long wait on your hands whilst they wait for council housing (although assuming they agree to move some councils have a good supply of over 65s housing). Would you ever need to sell the house quickly e.g. if your own finances changed? This is an illiquid asset.

Jesus.

So you're still making a loss at 8-10%? I'd increase it to whatever you need to increase it to to break even at the moment. You don't need to make a profit on them, you're profiting from a house sale in the future that they are funding for you now. But I wouldn't be making a loss on them, it makes no sense.

If you're not using an agent you are already saving at least 10%. Unless you are on an interest only mortgage you will be paying off some of your mortgage each month, so will still be making a profit, just not cash in your hand.

Many are, but this is by no means universal. Mine is capital repayment (my choice).

It would be unlikely that housing benefit would cover all the rent

You’re not a charity, you can’t be making a loss. Increase it by what you need to to at least break even. Their circumstances aren’t your responsibility.

You can’t continue making a loss so adjust as necessary.

I don’t think the accidental landlord part is relevant tbh except perhaps to make yourself feel better. If you have a BTL mortgage it doesn’t sound like you are one. I’ve been an accidental landlord due to working abroad for a year and stayed on my residential rate until it ended and I sold.

Can you even get a buy to let mortgage if you are making a loss? I thought you had to show a certain % profit. Regardless, you can't be making a loss on it long term. I think you need to increase to at least cover costs or the mortgage requirements. But I wouldn't increase to market rates if I didn't need to

Heads up OP - people will lay into you for saying you're an "accidental landlord" (I'm in same position), imply you should accept higher costs and lower / no profit because "that's what businesses do" and say you should sell at a loss or risk your own family life for the sake of your tenants. This is Mumsnet.

Rent increases need to be fair and realistic, you would need to consider whether an increase of around £210 a month would meet this criteria or whether it would be better to increase by 5-10% this year and advise them it will be reviewed annually from here on in.

Double check your contracts and the law to make sure you do it correctly and that you notify them properly.

Also be prepared for them to negotiate so have a 'bottom line' in mind for how far you're prepared to compromise.

If they refuse the increase or can't afford it then you will need to either suck up the loss or serve notice, again make sure you follow all the correct process to ease this.

Just increase the rent. I'm sure the elderly tenants can cut back on heating or eating so that their landlord's investment makes the best possible return 👍