In the UK, there is no figure in which a landlord can raise rent in a year. The rules around it though state that any rent increase must be reasonable and reflect market rents and this usually works out to around 2% per year.
Rent increases aren’t always a bad thing though as they allow landlords to have more of a budget to do upgrades in your property. However, most of the time, tenants are the ones who are out of pocket as a result.
Can landlords only increase rent by a certain amount?
Currently, there are no rent controls for assured shorthold tenants in England and Wales. It is important to note, however, that if you propose a large rent increase, your tenants are more likely to challenge it and this can work out to be more hassle than it is worth.
To avoid this, some landlords raise the rent by a small fixed percentage every year so it comes as no surprise to tenants, while others raise it in accordance with the Consumer Price Index or annual inflation. Having said this, there is a lot of debate as to what this figure of inflation actually is and how this relates to the Consumer Price Index in the first place so even if you are planning to do this as a landlord, there is still no official figure to follow.
If your tenants object to the proposed rent increase, they can file an appeal with the Residential Property Tribunal. Before making a decision on the new rent, the tribunal will require written submissions and supporting evidence from both parties.
This tribunal will consider a range of other factors including if there is any chance that a landlord is making a decision for rent increase out of retaliation.
It is important to note that the tribunal may set the rent at either a higher or lower level than the proposed increase. As a result, going to the tribunal can be a risky decision for both the landlord and the tenant.
If you want to understand this part of the law in more detail, head over to the government website here where you can view some helpful examples of how this may play out in court.
What is the amount a landlord can increase the rent by?
While there is no numerical amount that a landlord can increase rent by, they cannot increase rent more than what is fair and reasonable based on the other properties in the area.
This averages out to around 2% per year but is not to say every landlord will issue a rent increase (section 13) every year nor is it to say that if there is an increase it will reflect the 2% figure.
This is just a figure that shows the average national figure for rent increase.
What is meant by fair rent?
Fair rent refers to the amount that a landlord would be able to charge to a protected tenant where protected tenants are those that have additional right to stay in a property.
Another name that you may have is a protected tenant called a regulated tenant which are tenants that are governed by the laws of the rent act 1977.
You have a protected tenant in your property if the property was in poor condition before the Private Tenancy Order came into effect in 2007.
What is the amount that rent is increased per year fairly?
Whatever the average rent is for a similar property in the area is the amount that a landlord can get away with increasing rent by. In general, the factors that a property manager, letting agent or landlord should look for in order to price rents are:
- Whether the property is furnished
- The number of bedroom in a property
- Whether it is detached, semi-detached or terraced
- The age of the build
- The location of the property
Finding similar properties that have as many of the similar factors as above as possible is the most accurate way to find a rent that a landlord will be able to increase legally and morally.
Landlords will also take into consideration other factors like if the tenant has been looking after the property and what their relationship has been like in the past in order to price rent.
In fact, if a landlord likes a tenant quite a bit, they can also choose not to increase the rent at all. It is worth noting though, that because rent increases happen gradually over time, most landlords will not issue a rent increase every single year.
Especially because tenants are within their right to dispute the increase and this back and forth process may not be worth the hassle when compared to a small increase.
Instead, most landlords will increase rent by a substantial amount every few years. Having said this, the frequency at which a landlord increases rent (as long as it is at most every year) is completely up to them.
What would be the reasons for a landlord increasing rent?
As mentioned, a landlord increasing rent isn’t always an evil, immoral thing to do. While this may be the case some of the time, there is a good chance that a landlord is just doing what they need to do based on the below factors.
For example, with rising mortgage rates, landlords may need to raise rents to increase their rental yield and pass a mortgage stress test. In addition, they may increase rents to do property improvements or raise money for fines.
Read on below for the details on what a landlord can increase rent for as you may not notice there are more reasons than you initially thought.
To pass mortgage stress tests
First of all, it is natural for rent increases to naturally happen over time. Especially as property prices increase and landlords need to keep up with maintaining the right rental yield to pass mortgage stress tests.
For instance, Let us suppose the property is worth £100,000 and the rental yield is 5%. This would mean that the property’s annual rental income is 5% of £100,000 which is £5,000 making the monthly rent about £416.
On the other hand, if the landlord increases the rent by 10%, the new annual rental income is £5,500 (£5,000 + 10% of £5,000). As a result, the monthly rent would rise from £416.67 (£5,000 divided by 12) to £458.33 (£5,500 divided by 12).
However, if the property’s value also increased by 5% then this rent increase is justified as the landlord is only keeping up the demand of property in the area and they need to maintain a certain rental yield to be approved for a mortgage.
In this way you can see clearly how an increase in property prices or even mortgage rates (which increases the price of debt used to buy property) may force a landlord to up their rents and tenants pay the price the most.
To carry out property improvements
If a landlord needs to make repairs to a property or there is a cost they have to cover in the property that they don’t have the money for then issuing a rent increase may be the only way they can reasonably do it.
Sometimes this is necessary for a safety perspective and it is not that the landlord wants a fancy looking property. Things like the cost of replacing the roof of a property or finding funding for renovations to keep up with new EPC regulations.
To be able to pay fines
Sometimes, a landlord may increase rents in order to pay for rising taxes and costs from local authorities. For instance, there could be a new licence that is needed for a HMO property for example and this may- cost a lot of money.
Haringey borough council which is an area in London are charging these prices for Hmo licences which are over £1,100. This money has to come from somewhere and if a landlord needs to meet these payments on top of mortgage payments they may be left with no choice but to increase the rent.
Some of these costs also may include rising gas bills, rising electricity rates or perhaps rising service charges which would apply if the landlord is a leaseholder and subletting the property based on a freehold agreement.
When exactly do landlords increase the rent?
There is no particular time of year that a landlord can issue a rent increase. As long as it is not within the fixed term of a tenancy agreement, a rent increase can be issued at any time.
A fixed term tenancy is essentially a period of time in which a landlord is able to ensure that a tenant must stay in the property and the same is also true the other way round, a tenant is able to ensure a landlord cannot evict them for no apparent reason.
Once this fixed term is up, a break clause is issued and this means either party is able to end their agreement after the tenancy becomes a rolling tenancy and the landlord could then increase the rent too.
A fixed term helps to project the security of both landlords and tenants. Tenants can safeguard themself for a period of time against eviction and landlords can prevent void periods in their houses.
If there was no fixed term then a landlord would likely have a high churn rate of tenants where each tenant only stays in a property for a few months.
Having said this, the most likely time of year for there to be a rent increase is in the summer as this is at a time where there are a lot of people moving houses and at the same time, landlords also tend to review their rent.
It is unlikely that a landlord will issue a rent increase during periods of holiday as if the tenant leaves the property or goes to tribunal, because of the poor rental market at certain times of the year, the empty property could become hard to fill.
Is there a notice that has to be given when increasing the rent?
Yes, landlords in the United Kingdom are required to give their tenants notice before raising the rent and this notice is called a section 13. In fact, if the landlord doesn’t formally issue a rent increase using this form then this is illegal.
For the exact rules around issuing this notice including how it must be given to the tenant, within what timeframe and under what circumstances click here. It is worth noting that this form can only be issued once every year.
Before increasing the rent on a periodic (rolling) Assured Shorthold Tenancy (AST), the landlord must give at least one month’s notice.
However, for fixed-term ASTs, the landlord can only raise the rent if the tenancy agreement includes a rent review clause, and they must give at least one month’s notice before the new rent takes effect.
It is critical to understand that rent increases must be fair and reasonable, and cannot be increased randomly and without sufficient evidence that the increase is justified, no matter how legitimate the notice is in terms of being given with the right notice and at the right time.
If a tenant believes that a proposed rent increase is unjust, they can file a complaint with their local Citizens Advice Bureau or a housing solicitor.
All in all, the most important thing you should take away from the way rent increases are managed when answering the question of how much can a landlord raise rent in a year uk is that there is no numerical amount.
It all depends on the average rents in the area and how these rents are rising at the time when the landlord issued the rent increase.