Tenants: What is a fair rent increase?

[Panicat]

We have 2 rentals at the end of the Elizabeth line in London. Never raised the rent. Tenants have been in each for 6 years. One 2 bed house goes for £1120 and the other 3 bed is £1300. They were always competitively priced but now they are each quite a bit below market rates. For context, a rather grim two bed flat (not house, local authority building, no garden) is on for £1500 - so £400 less than the two bed house and a 3 bed on the same road as our 3 bed was recently advertised for £1900, £600 less than we are charging, and was snapped up. During Covid we let tenants off with at least a couple of months of rent. Houses are maintained. Not the flashiest area but whenever the tenants want anything we do it asap. What is a fair increase? We want to keep them below market rates as I think it would be too much to stomach. Is it better to raise it by, say, 7% this year and another 5% next year or do a bigger rise in one hit? If you’re a tenant, which would you prefer? We are 30% or so below market rate but I think market rates in London are insane. However our costs have massively risen too and they’re not about to go down.

Personally I would prefer to have one rise now and notice given at the same time that you'll need to make a further rise next year.

I'd ideally like a bit of an explanation of the rising costs you're having to cover (obvs everyone knows the drill but it would help soften the blow to understand as much as you're willing to share).

I'd like an idea of the kind of rise to expect the following year ("I'll need to let you know what the increase will be closer to the time but as things stand it would be around an additional 5%. This could change depending on XYZ but I'll aim to give you at least 3 month's notice of what the increase will be"

The reason I'd prefer two increases is that I'd have more time to figure them into any budget. A large increase might put me in a position of not being able to afford it and not much time to either figure out a way to afford it or find somewhere else (which would be super stressful given what you've said about the likelihood of them affording anywhere else).

Mine went up £70 this month. From£1170 to £1200 last year it went up £20

Sorry typo 🤭

In addition to checking what the market value is for similar locally, you need to calculate what your own cost increases have been- mortgage, maintenance, insurance etc etc.

I agree with a well worded letter reminding them of no increase in 6yrs, X months free rent during covid (which sounds very generous TBH) and the unfortunate need to increase now. I would think split increases over 2/3yrs better than a larger increase now, so they can plan ahead- or move if preferred.

I’m not a landlord but write to them with a plan which sets out that market rate is X and a schedule setting out how you will achieve it. That way they can assess whether they can afford it and for how long.

Thanks for your feedback. @Doggymummar did the rent increase sting or did it feel fair? I don’t want to pass all our costs onto them. We are fortunate to be homeowners - albeit mortgages ones. I secretly like the idea of not being the assh@le landlord everyone expects us to be if you believe the narrative. But govt reforms and policies based on ‘greedy landlord’ rhetoric (and sometimes reality!) is forcing many to sell up and that, combined with interest rate rises and fewer properties to let is forcing rents up.
Would it be sensible to approach the tenants and ask what they think is a fair amount given increases and market rates? Or is that just weird?

My landlord put my rent up by 16% which hit hard, but his alternative was to sell up. I wanted to stay so it was a good solution. He locked in for 5 years so hopefully it will stay static for that duration! He kept me informed at all stages. He is also a good landlord.

I was expecting much more to be honest. Our ll is very well off and this was his dad's house before he passed. LL is in his 70s and will probably want to sell to add to his pension soon enough. We are in a commuter town 45 mins outside London Victoria and I think it is well priced. Detached bungalow huge garden garage etc

My landlord put ours up by 14 percent this month. Wouldn't mind but they take months to do repairs.
Long as you give them notice and don't do what mine did and give 3 weeks notice!

tbh as a LL I only look at my costs and a few rents of places where I know there are decent landlords when making decisions like this. I don’t take the area general rents into account as a few piss-taking LL’s (imo) skew the figures with rents that are just ridiculous. Thankfully a bundle of new build social housing has kept it in check a bit recently.

That said if you are going to bring them up to competitive prices then giving your tenants a heads up that it’s one increase this year and another next so they can budget, and can be honest if they can’t afford it. I absolutely wouldn’t do it in one big jump - increasing by 10/15% after no increases for 6 years will be massive for them.

I believe in Scotland rent rises are now capped at 3%. I realise you’re not in Scotland but just putting that there for context. It’s a tough one. As a landlord I wouldn’t mind not necessarily achieving market rent if I had good tenants.

I’d suggest a small rent rise this year and next but with the context that there have been no rent rises in 6 years plus they had a payment break during Covid. That seems more than fair to me.

My tenants gave notice last Autumn and the managing agents said put the rent up 15% and they relet it in one day. Tenants changed their minds as the new flat fell through and it suited me to keep them but I said they'd have to pay the new rent. They were absolutely fine about it as they hadn't had an increase in three years but rents had skyrocketed (so they'd be paying more at the new place anyway).
I'd put the rent up 5% this year and another 5 next year.

I have just done the maths on the property where interest has shot up again this month. After tax and after mortgage, we have £10 left. This is the one that is 33% below similar rental on the same road. When I say competitive I mean bringing it to below the market rate but a 5% rise won’t touch the sides. I think we need to really consider selling as we don’t want to cause discomfort to the tenants but in the mean time, we are facing escalating costs on all fronts (and job insecurity for DH in the coming months thanks to a merger).

If our LL put ours up 5% it would take 50% of our payrise take-home (2.5%). If she put it up 10% it would be all of it plus a tenner.

I would still rather that than look for a new home in a shitty rental market.

Honestly, with no rise for six years, your tenants will be expecting this.

I would have a discussion with them. Maybe one or both can buy from you. Maybe one or both can afford to pay what you need not to be making a loss.

Go round and see them. I wouldn't remind them of the COVID free rent period, they don't need to be made to feel shitty about not having been able to pay their rent. Just have a discussion amongst decent adults about what needs to be done to keep everyone's finances happy, and hopefully you can come to an agreement.

Thanks for being a decent LL, btw.

2nd rent increase in 7 years was 5% so £50 . It wasn't raised during the covid years

We are also landlords with properties at the end of the Elizabeth line… To be fair we have applied increases to rents most years but we are still probably 10% under market rates. As a landlord I value a good paying tenant and prefer to position our rent such that the tenants are motivated to stay.

I hear what you’re saying about increased costs, particularly interest rates. However we certainly didn’t rush to put rents down when interest rates fell - instead we had a few years of higher profits. I’m inclined to think that as landlords we have to weather the storm to a large extent and absorb a lot of these increases. After all it isn’t the tenant’s fault of our property has a mortgage on it - that’s our risk as landlords. Of course if that makes the investment untenable then divestment may be for the best.

Id be wary of committing to a fixed % for next year’s increase just in case you have to rethink. In your shoes I’d probably do a chunky increase this year (but still clearly below market rate) with a view to getting closer to market rate over time.!I think we have to be mindful of any political will to cap rent increases so you’d be foolish to leave rents too low in case you end up trapped unable to raise them.

@KievLoverTwo I wouldn't remind them of the COVID free rent period, they don't need to be made to feel shitty about not having been able to pay their rent.

I read it as the OP just didn't ask for the rent, not that the tenant just didn't pay it? Why shouldn't the LL remind them of this, in addition to 6yrs of no rent increase and below market value?

@Panicat During Covid we let tenants off with at least a couple of months of rent. Can you clarify what you meant? They didn't pay or you offered them a few months free?

Thank you again. Good point re being able to weather the storm and not also the potential rent cap coming which could leave us in difficulty. Both sets of tenants needed rental ‘holidays’ during Covid due to reduced income and couldn’t pay so we waived it. No I wouldn’t ram that down their throats, they probably feel awful anyway. Sounds like a staggered rise is the way to go.

I think a considered rise with explanation and notification is easier to deal with. Then keep pace year on year/every two years, with smaller rises (to avoid having to sell).

For comparison with the percentages you're thinking of, a relatives rent in London has just gone up by 33%. They are having to move because it's such a shock in one go.

Always amusing the extent to which landlords tie themselves in knots to maintain the belief they are “good people”. Frankly if the cognitive dissonance was causing me this much anguish, I would rather sell up and find more morally straightforward ways to make money!

You are brave to ask this question on MN. Most people will think that you should pay your tenants for the privilege in living in a house you own.

Yes @Housebuyingfamily maybe selling up and leaving even fewer houses in the private rental sector in London is the ethical thing to do. @Florissante I guess we almost are with one of them!

My landlord increased my rent by ten per cent last year and another 10 per cent this year
He never does any repairs so it’s left a very bitter taste and I will now be moving

If we’d be getting rent increase, we’d move to a better/newer property. At least in our area there’s still plenty to choose from and I keep seeing reductions. We’re not as far as Elizabeth line end, more like zone 2-3. However, we are financially stable tenants, we didn’t need rent holidays covid or no covid etc., and I think our landlord doesn’t have mortgage, so prefer stable tenancy instead of extra £100.

In general mortgage landlords should be more regulated imo. If you can’t afford to buy a property, why are you even a landlord?

And you shouldn’t worry too much about selling it. The more of you come forward to sell the bigger the supply, and we all know what that means. So there’s really no need to play this good hearted victim, who took last shirt of her back to help people to have places to rent. Please 😂 Country was functioning perfectly fine without private diy land-lording before, it would sort itself out
now too.