Landlord Guide: How to increase rent in late 2023

After a long period of stable rents, low interest rates and low inflation, late 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. This is the approach of a responsible landlord, which recognises that private landlords are running a business, and not providing social housing.

In writing this blog post, I draw on both my experience as a lawyer, and as a self-managing landlord who handles my own rent increases myself.

Why have rents been 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, in 2023, we’ve been adjusting to living with high inflation. Also, mortgage payments and day to day costs have escalated considerably for landlords in 2023, and many landlords are having to refinance onto higher rates as their fixed term mortgages have come to an end.

As well as inflationary pressures and high interest rates, 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 don’t increase the rent, 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 in the UK?

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, and single let tenancies as opposed to HMO rooms.

What is the average rent increase for new single let tenancies in 2023?

According to the Q2 2023 data from Rightmove, the average asking rent for new single let tenancies in the PRS excluding Greater London increased by 9.3% (£1,231) in the twelve months to June 2023. This is considerably more than CPI inflation, which was 6.8% in the 12 months to July 2023.

For context, Rightmove says the average asking rent outside of London is now a third (33%) higher than pre-pandemic mid-2019. This is an increase of more than £300 from £923 pcm.

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 percentage increase is the South West at 7.5%.

How much are room rents increasing for HMOs in Q2 2023?

According to the Q2 2023 data from SpareRoom, the average rent including bills for an HMO room in the UK outside of London is now £704. This is an increase of 17% on Q2 2022. However, with the rise in energy costs, it’s may be understandable that the average rent has gone up more than for single lets where bills aren’t included. However, this increase is more than the change in energy costs.

In London, the yearly increase has been an eye-watering 19%, with an average of £972 per room, up from £952 per room in Q1 2023. There’s no longer a single London postcode with average rents under £700, and just two with averages under £750 (E12 (Manor Park) and SE28 (Thamesmead)). This is creating considerable hardship for renters in London.

Click here for a comparison between average rents for single lets and HMOs in Q2 2023.

How much are rents increasing for existing tenancies in 2023?

According to the ONS data released in September 2023, private rental prices increased by an average of 5.5% per annum across the UK in the 12 months to August 2023. This includes all tenancies, including existing tenancies. The equivalent figures were 5.4% for England, 6.5% in Wales, and 6,0% in Scotland for the same period.

As this data is an average of both new tenancies (where rents are increasing rapidly) as well as existing tenancies, this means that rent increases for those already living in the property will be lower than 5.4%. In other words, the rent increase for existing tenants are lower than inflation, as landlords want to keep their existing renters.

How much can English private landlords increase the rent by in 2023?

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). This means that landlords have freedom to set the rent at whatever level they think fit. That said, 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, there’s always the practical cap of affordability and competition. 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 responsible 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.

What is a fair and reasonable rent increase in the UK in late 2023?

A fair and reasonable approach is for private landlords to increase the rent by up to wage inflation. As the ONS data released in September 2023 showed that annual growth in regular pay (excluding bonuses) was 7.8%, a rent increase of around 7% is reasonable in late 2023.

Keeping rent increases at around wage inflation means the increase ismore likely to be affordable for renters, and less likely to end up causing them to fall into arrears. As CPI inflation has now finally dropped to 6.7% (ONS – August 2023), it helps landlords whose costs have been increasing significantly over the past year or so.

Incidentally, 7% is also the cap for rent increases for social housing for 1 April 2023 – 31 March 2023 (Source: Rent Standard 2023).

>> Tip: The Consumer Prices Index (CPI) is a more relevant measure for renters as this index excludes owner occupiers’ costs. CPIH, which is used widely in the press, includes owner occupiers’ costs.

It’s best to find the right balance of improving your return with smaller rent adjustments each year, rather than doing it all in one go.

To read more about being a responsible landlord, you can read this blog post: What are the 5 Hallmarks of a Responsible Landlord.

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. How often can landlords increase rents during a 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. Can rent be increased during a 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’s to phase the increase.

4. How often can rent be increased using a Section 13 notice?

If the landlord and tenant can’t reach agreement, 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.

>> Related Post: 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 allows the landlord 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 and clauses can certainly be more flexible. For instance up to 5% rather than a flat 5%, or up to the rate of CPI inflation. With CPI inflation having been so much more than 5% in 2023, a cap of 5% is out-dated.

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, 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 agree the level of the with the tenant.

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. However, keeping the increase around wage inflation is likely to be more palatable for affordability reasons.

If your increase is below wage or CPI 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 seen 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. The Section 13 notice sets the new rent, unless it’s successfully appealed by the tenant at a rent tribunal (see below).

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.

Once the Renters Reform Bill comes into effect, landlords will have to use a Section 13 Notice to increase rents.

>> Related Post: How to Increase the Rent with a Section 13 notice

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.

>> Related Post: Section 13 notice and appeal process.

How would the Renters’ Reform Bill Change Rent Increases?

The draft of the Renters Reform Bill published on 17 May 2023 would completely change the way landlords increase rent.

First of all, landlords would no longer have the option to agree a rent change informally with renters, or have rent review clauses in tenancy agreements. Instead, they’ll need to issue a Section 13 notice in a new format to be published on the GOV.uk website.

Landlords would 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 would come into effect unless the tenant applies to the Rent Tribunal before the proposed rent increase.

The Rent Tribunal would only decrease the rent if, as now, if the Rent Tribunal decides it’s above the market rent for the property. This means there would 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 would look very officious sending one of these notices. I’d chat to my renters before hand anyway, and propose the change informally, before confirming it in writing.

Of course this is still just at the draft stage, and the final version may well be different. You can check the latest status of the different moving parts in my Renters Reform Hub.

>> Related Post: Renters Reform Hub

Final Thoughts

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 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 20 September 2023

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• Is being a buy to let landlord still worthwhile in 2023?
• The 10 Key Changes in the Renters Reform Bill
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• Is Passive Income a Myth for Landlords?
• A Guide to Buying Tenanted Properties