Rent increases - are they necessary?

I must admit my thoughts as a landlord on rent increases have changed over the years. Previously I believed in not unduly increasing the rent if a tenant had paid on time each month and looked after the property. In fact, there were tenants of mine who had not received a rent increase for a number of years after moving in.

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This was all well and good when the average rent in the UK was increasing by just 2.4% per year (as was the case, on average, between 2015 and 2021), meaning the original rental figure did not become too far off the ‘going rate’. Since the middle of 2021 though, rents in the UK have been increasing at an average of 9.2% per year (totalling an increase of 28% in the past three years), which has made it a little harder not to follow suit.

This is not just about ‘taking advantage’ of tenants though. The fact is that the financial landscape for landlords has changed drastically. An increase in legislation and a change in the way landlords are taxed has increased costs. And then we have interest rates…which have massively increased the cost to any landlords with a mortgage.

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Now I’ll admit, when mortgage rates went down from around 6% in 2009 to 2% in 2020, I didn’t slash rents. But I did take into consideration that I did not need to increase rents because my mortgage costs were so low. This was a key reason I chose not to increase rents to good tenants during this period - a true win-win! Now that rates have reversed though, and with monthly mortgage payments suddenly doubling or even tripling, you cannot escape the fact that more income is required to counteract this i.e. rents need to go up.

The alternative, which is one many landlords have taken, is to simply sell the property instead. This would result in the tenants both losing their home and facing much higher rents anyway on their next equivalent rental property when looking on the open market.

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But what about landlords without a mortgage - surely it is not necessary for them to increase the rent? Well, on the face of it perhaps not (although there are other costs that have increased), but there is also the opportunity cost to consider. Basically, if the rent is not increased, they will be getting a lesser return on their investment. When you consider they could sell up and stick the money in a savings account instead, which comes without the effort or associated risks of being a landlord, an increase in rent is necessary for it to remain worthwhile.

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So, it seems rent increases probably are now necessary for most landlords. With that in mind, for my next article I’ll consider what is fair when it comes to rent increases.

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E-mail me on clive@crjlettings.co.uk or call 01243 624 599