Should I put the rent up?
Competition is fierce in the rental market at the moment, but should landlords be putting the rent up?
The cost-of-living is rising rapidly:
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- Energy prices. The energy price cap went up in April 2022 and is due to go up again in October 2022 and January 2023. The government has organised a £400 grant for domestic electricity customers, this will appear as a credit from energy suppliers from October 2022 onwards and will not need to be repaid. However, the increase is still troubling for everyone, with many worrying about being able to afford both heating and eating this winter.
- Food prices. The price of food is rising at the fastest rate in 40 years, especially in staples like bread, cereal and meat. This is partly due to the Russian invasion of Ukraine, which has severely restricted wheat and maize supplies
- Fuel prices. Increases in fuel prices in June mean that it now costs more than £100 to fill an average family car
- Base rate. The Bank of England base rate has gone up multiple times in the last few months, which is good news for savings, but bad news for anyone looking to get a new mortgage or remortgage
- Inflation. UK inflation is at 9.1%, the highest in 40 years. The biggest drivers of inflation at the moment are soaring food and non-alcoholic drink prices
Wages are, unfortunately, unlikely to rise to match the rising costs, which means that everyone will need to be tightening their belts. Supermarket Asda is already reporting that people are switching to budget brands, buying less and setting spending limits.
At the same time, rent is rising. Competition is fierce in the rental market for a number of reasons:
- Landlords exiting the sector. Many landlords are selling up, with the average number of London landlords who were selling up doubling between February and March, a trend that is reflected across the UK. This means that the private rental market is shrinking, so there are fewer properties available for rent
- Return to cities. Renting is big business in UK cities and many people left the cities due to pandemic restrictions, returning to family homes or cheaper areas to ride out the lockdowns. When restrictions eased, people flooded back to the cities, creating huge competition and driving up prices
Is now the right time to put the rent up?
This is a tricky question because you are running a business, but property is an emotive industry because these are people’s homes. With so many other outgoings going up, you need to consider if putting the rent up will ultimately do you a disservice.
In the winter, with food and energy so much more expensive, will your tenants be able to afford an increased rent? Rather than increasing your income, you could find yourself struggling to cover rent arrears or losing a good tenant and needing to find a new one.
There are a few things to consider:
- Do you need the additional income? If your outgoings have gone up, for example, your mortgage repayments, then you may need to put the rent up to cover those outgoings. You can use our free Income and Expense Tracker to visualise your finances, this will help you work out if you have enough to cover your outgoings or if you need to put the rent up to cover them
- Are you prepared for a void period? If you put the rent up and your tenant cannot afford it, they may wish to move out to find somewhere cheaper. Depending on when this happens, you may struggle to find a new tenant, for example, if it’s later in the year when everything will be even more expensive than it is now. If this happens, can you afford the void period that could ensue until you find a tenant who is able to afford the rent?
- Do you have RGI? Make sure that you have Rent Guarantee Insurance before the autumn and winter. With prices rising and wage increases unlikely, even the best tenant may find themselves struggling and unable to make the rent. Mashroom’s RGI covers you from the first missed or part payment
Ultimately, the industry is reaching the point where increasing the rent is becoming an ethical question. If you are able to cover your outgoings without increasing the rent, it’s worth considering foregoing the potential increase in income to support your tenant through a tough time.
If you have a tenant who has been with you for a while and has been reliable and looks after your property, this could be the best bet for you, as they are a known quantity. You could choose to put the rent up, lose your great tenant and end up with someone who doesn’t take the best care of the place or who quickly falls into arrears.
