After a long period of stable rents, low interest rates and low inflation, 2023 is a very different place for landlords and renters alike.
High inflation and high interest rates have caused costs to escalate for landlords. This has left many landlords wondering if they’ll break even, unless they increase rents. Then there’s the added problem of having to pass stress tests at higher interest rates when they refinance at the end of their fixed term interest rate period, which would have inevitably been at a lower rate.
Renters are very much affected by the cost of living crisis. They’re particularly worried about “rent shock”, when their landlord suddenly increases the rent by more than inflation.
Despite the media narrative about greedy landlords, most are reluctant to put up rents for good long-term renters. With rents having been stable for so long, they’ve become used to only increasing rents when tenants change. Putting up the rent for existing renters goes against how they’ve run their buy to lets.
However, things are different now. Keeping the rent the same during high inflation means it’s reducing in real terms.
In this blog post I explain how landlords can handle rent increases in a way that balances their needs with those of their renters, and complies with the law in England.
How to increase rents in England at a glance
- Why are rents going up so much in 2023?
- How much is the average rent increase in 2023?
- How much can private landlords increase the rent by?
- How often can landlords increase rents?
- The processes to increase rent in England
- How will the Renters’ Reform Bill Change Rent Increases?
- Final Thoughts
Why are rents going up so much in 2023?
There have been a lot of headlines about high rent increases over the past year, particularly for new tenancies. But why have rents shot up so much in 2023 across England, Scotland and Wales?
We’ve lived through an extended period of low inflation and low interest rates during which landlords didn’t need to increase the rent. If a market adjustment was needed, they usually waited until a change of tenant. Landlords and renters alike had become used to this.
However, we’re all now adjusting to living with high inflation. The headline rate of inflation (Consumer Prices Index – CPI) in the UK rose by 8.7% in the 12 months to April 2023, down from 10.1% in March. Wage inflation, is less than this, with the May 2023 ONS Data reporting an average wage increase (excluding bonuses) of 6.7%, ranging from 7.0% in the private sector to 5.6% for in public sector. The finance and business services sector saw the largest increase at 8.8%, followed by manufacturing at 6.3% and construction at 6.2%.
Landlords’ costs have also been increasing considerably. Mortgage payments and day to day costs been going up. Landlords also face the prospect of expensive upgrades in energy efficiency to reach an EPC C. (Click here for guidance on EPCs).
As well as inflationary pressures, there’s a shortage of rental properties. This is due in part to landlords leaving the PRS, and there’s also been less turnover of renters. First-time buyers have become priced out of the property market with the increase in interest rates. They’ve been staying put in their rental properties while they save. Also, there isn’t the usual churn of renters, as the increase in asking rents is causing many to stay put.
If landlords leave the rent the same, it’s the same as reducing the rent as the same money is now worth less in real terms. As landlords are affected by inflation and may well have higher mortgage payments and higher stress-tests, the buy to let can soon become uneconomic unless the rent increases.
How much is the average rent increase in 2023?
Averages hide a multitude of sins. When referring to average rent increases, the amount very much depends on whether it’s for new tenancies or existing tenancies.
How much are rents increasing for new single let tenancies in 2023?
According to the Q1 2023 data from Rightmove, the average asking rent for new single let tenancies in the private rented sector excluding Greater London increased by 9.4% (£1,190) in the twelve months to March 2023. This is roughly the same as CPI inflation.
However, as you can see from the table below, the rate of increase varies considerably across England, Scotland and Wales. The highest average annual rent increase for new tenancies is an eye-watering 14% in London. The region with the lowest
|Region/ Country||Average increase||Average rent pcm|
|East of England||8.7%||£1,446|
|Yorks. and The Humber||10.8%||£940|
|Average GB ex London||9.4%||£1,190|
Source: Q1 2023 Rightmove Rental Trends Tracker published 28 April 2023
How much are room rents increasing for HMOs in 2023?
According to the Q1 2023 data from SpareRoom, the average rent including bills for an HMO room in the UK outside of London is now £598. This is an increase of 14% on Q1 2022. However, with the rise in energy costs, it’s understandable that the average rent has gone up more than for single lets where bills aren’t included.
That said, in London, the yearly increase has been an eye-watering 20%, with an average of £952 per room. There’s no longer a single London postcode with average rents under £700. This is creating a lot of hardship for renters in London.
Click here for a comparison between average rents for single lets and HMOs in Q1 2023.
|Region/ Country||Average increase||Average room rent|
|Yorkshire & Humber||13%||£520|
|Av UK ex London||14%||£598|
Source: Q1 2023 SpareRoom Rental Index
How much are rents increasing for existing tenancies in 2023?
The situation is very different for tenants ‘in situ’, in other words renters who are already living in the property. There, the rent increase tends to be lower than inflation, as landlords want to keep their existing renters.
According to the ONS data released in May 2023, private rental prices increased by 4.7% per annum in the 12 months to April 2023. This includes all tenancies, including existing tenancies. The equivalent figures were 4.8% in Wales, and 5.2% in Scotland for the same period.
This means that the average increase for existing tenancies will be less than this, in the region of 2-4%.
How much can private landlords increase the rent by?
How much can landlords increase the rent by in 2023? In England, there are no legal limits on the amount a private landlord can increase rents in the private rented sector. (There’s a cap of an increase of 7% for social housing in 2023-24). That said, there’s always the practical cap of affordability and competition, and if it’s above the market rent, the tenant can challenge the rent increase in a Rent Tribunal. Click here for more on Rent Tribunals.
Also, if the increase is more than the market rent for the area, renters are likely to vote with their feet and leave. If the rent is more than they can afford, even if it’s the market rent, they’ll probably leave and find somewhere smaller, or in a cheaper location.
Part of being a good landlord is acting reasonably, and hiking the rents up by a large amount in one go for existing tenants is simply not reasonable. Just because the law allows you to do something, doesn’t mean it’s the right thing to do.
A reasonable approach is for private landlords to increase the rent by up to wage inflation, even if it’s below CPI inflation. It’s more likely to be affordable for renters, and less likely to end up causing them to fall into arrears. A rent increase of around 4% is likely to be reasonable in 2023, as it’s well below average wage inflation, even the average in the public sector. It also recognises that landlords’ costs have increased.
It’s best to find the right balance of improving your return with smaller adjustments each year, rather than doing it all in one go.
How often can landlords increase rents?
The rule of thumb for the frequency of rent increases is once a year. But this depends on the type of tenancy, whether there’s a rent review clause and whether the tenants agree. As an aside, once the Renters Reform Bill comes into effect, landlords will only be able to increase the rent once a year, and will need to use a Section 13 notice. See below for more details.
As the law currently stands, the frequency of rent increases for the types tenancies and contractual terms in England is as follows:
1. Rent review clause
If there’s a rent review clause in the tenancy agreement, either fixed term or contractual periodic tenancy (where the tenancy agreement states it is periodic), the landlord will need to follow that clause.
Usually a rent review clause would refer to reviewing the rent once a year.
2. Periodic tenancy
Landlords don’t normally increase the rent more than once a year under a periodic tenancy. However, technically, they can increase the rent more than once a year if the tenants agree.
Sometimes landlords and tenants agree to have two increases in 12 months as a way of phasing a rent increase in two stages, if the rent has fallen behind the market.
3. Fixed-term tenancy
Landlords can’t increase the rent during a fixed-term tenancy, unless the tenants agree to amend the tenancy agreement.
If the tenants don’t agree, the increase will need to wait until the end of the fixed term, and negotiate it as part of the renewal or when the tenancy becomes periodic.
It’s possible to a rent increase twice in 12 months if the renewal fixed term periods are for 6 months. The first rent increase would be in the first 6 month renewal and the second increase in the second 6 month renewal. In other words, a 12 month fixed term tenancy can be ‘renewed’ by a 6 month fixed term. It doesn’t need to be for the same length of time.
If a landlord does wish to use two-stage method, they should be open with their renters about it, and explain it is to phase the increase.
4. Using a Section 13 notice
If the landlord and tenant can’t reach agreement, and the landlord will need to use a section 13 notice to increase the rent.
A landlord can only use a Section 13 once every 12 months.
Click here for details on how to increase rent using a Section 13 notice.
The processes to increase rent in England
It’s currently relatively straightforward for landlords to increase rents in England, so long as they follow the relevant process correctly. That said, the process will change when the Renters Reform Bill comes into effect. See below for more details.
Here are the three different ways you can do it, although the choice between depends on whether or not the assured shorthold tenancy agreement (AST) has a rent review clause.
1. Increasing rents with a contractual clause
The first thing to do is to check the AST to see if it has a clause like the one above, which would give the landlord the contractual right to increase the rent. Some, but not all ASTs, have these rent review clauses. They make increasing the rent straightforward, but they must be followed to the letter.
As an example, the clause above gives the landlord the right to increase the rent by a set 5% each year. The clause was in Leaders’ standard AST when I let a property through them in 2019. Although this clause gave me the right to increase the rent by 5%, I chose not to increase the rent. Like many other landlords during the pandemic, I kept the rent the same.
This clause is particularly restrictive. It is however clauses can be more flexible, for instance up to 5% rather than a flat 5%, or up to the rate of CPI inflation.
Rent review clauses can apply to both fixed-term and contractual periodic tenancies. However, they will no longer apply if the tenancy becomes a statutory periodic tenancy.
Finally, if the AST has rent review clause in force, then you cannot use a section 13 notice to increase the rent.
2. Increasing rents by agreement
If there isn’t a rent increase clause in the agreement, the landlord (or letting agent) should try to come to an agreement with the tenant about how much the increase.
The more reasonable the increase, the easier it will be able to reach an agreement. They’ll probably understand that landlords are affected by rising costs and interest rates, but keeping the increase around wage inflation is likely to be more palatable for affordability reasons.
If your increase is below inflation and average local rents for new tenancies, you should point this out. Explain that you want to find the balance between what’s affordable to the renters and what’s affordable to you.
As long as your proposal is reasonable and realistic, they’ll probably be relieved it’s not as high as the figures they’ve read about in the media.
3. Increasing rents using a Section 13 Notice
If a landlord isn’t able to agree on a rent increase with their renters, and it’s not during a fixed term tenancy, they can serve a Section 13 notice on the tenants. A Section 13 notice can only be served once every 12 months.
If the rent is paid on a monthly basis, the landlord needs to give a month’s notice under Section 13, and start the new rent at the beginning of a rental period. For example, if the monthly periodic tenancy starts on 2nd of each month to the 1st of the next, the date on the notice must be the 2nd. It’s the periodic tenancy date which is key, not the date on which the rent is paid. If the correct date isn’t used, the notice will be invalid.
The landlord needs to serve a Section 13 notice using Form 4 – click here for the official form on the government website.
Click here for more tips on serving Section 13 notices.
Once the Renters Reform Bill comes into effect, landlords will have to use a Section 13 Notice to increase rents.
Can tenants appeal a Section 13 Notice?
If the tenant doesn’t agree to the rent proposed in the Section 13 notice, they have the right to challenge it by refering the notice to the Rent Tribunal. They must do this before the date the rent increase is due to start.
The renters need to use Form Rent 1, which asks form detailed information on the property (rooms, facilities, type of property, furniture, repairs). Click here to download Form Rent 1 form the GOV.uk website.
In setting a rent, the tribunal will assess what rent the property would reasonably achieve if it were let on the open market under a new tenancy on the same terms. This means that the tribunal may set a rent that is higher, lower or the same as the proposed new rent.
The tribunal can also take into account any repairs that the landlord should have taken care of. Additionally, they can take account of the value of any improvements the tenant has made themselves.
The tenant will still need to keep paying the old rent until the tribunal makes a decision.
So long as the proposed rent increase is no more than the average for a similar property in the area, the tribunal is unlikely to decrease the rent.
Click here for tips on the Section 13 appeal process.
How will the Renters’ Reform Bill Change Rent Increases?
The draft of the Renters Reform Bill published on 17 May 2023 completely changes the way landlords can increase the rent.
First of all, landlords will no longer have the option to agree a rent change informally with renters, or have rent review clauses in tenancy agreements. Instead, landlords will need to issue a Section 13 notice in a new format to be published on the GOV.uk website.
Landlords will need to give at least 2 months notice of a rent increase, and will only be able to increase the rent once a year. The rent in the notice will come into effect unless the tenant applies to the Rent Tribunal before the proposed rent increase.
The Rent Tribunal will only decrease the rent if, as now, if the Rent Tribunal decides it’s above the market rent for the property. This means there will be no set rent cap in England after the Renters Reform Bill comes into effect.
These changes seem very bureaucratic to me. Whilst I can understand why rent review clauses should not be included in tenancy agreements, I don’t understand why rents can’t be agreed informally, as now. I think it will look very officious sending one of these notices. I’ll chat to my renters before hand anyway, and propose the change informally, before confirming it in writing.
As the law currently stands in England, landlords may increase rents so that they keep up with the market rent for that type of property in the locality.
However, the worst approach for a landlord is to put up the rent by more than inflation all in one go. Even if it’s to catch up on what has become below market rent. This is likely to be difficult for the renters to manage, particularly because their wages are likely to have increased lower than CPI. It’s also not a good way to treat renters.
Rent increases are never going to be popular, but they’re necessary in periods of high inflation. However, it’s fairer to renters to do them gradually over time, rather than in one big go. Landlords should come up with a figure that’s fair and reasonable for them and their tenants, and follow the process correctly.
Law and data as of 24 May 2023
Need some advice! I’d previously taken my tenant to court for rent arrears and got a suspended possession order but suspended providing she continued to pay rent from now on. She paid a couple of months then was late so I applied to court and finally got a warrant for possession. This warrant has now been suspended due to her ‘hardship’ circumstances and another hearing has been set for 20 weeks time. She has not had a rent increase for 3 years and is on an AST thats become periodic. Following recent valuations she is paying well below the current market value. My question is: Can I issue a Section 13 with a suspended possession order and warrant in place?
Hello. So sorry to hear about this. Sounds like you’ve been through the mill.
I’m unfortunately not able to give individuals advice on this blog. I suggest you call the NRLA membership helpline. They are brilliant at this sort of thing. If you’re not a member, you can get £15 off by using my referral code: UYN-702. I hope it all works out ok.