3% rent increase reasonable?

by Readers Question

14:14 PM, 23rd January 2020
About 4 weeks ago

3% rent increase reasonable?

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3% rent increase reasonable?

We currently let 3 properties, all of the tenants have been our tenants since we purchased them in early 2017. We haven’t increased the rent since, however we would like to do so this year.

All of the tenants are on a periodic tenancy agreement and the AST has provision for a rent increase –
Section 9) If the Tenant remains as the lawful Tenant of the property for more than 12 months the rent will increase once each year. The first increase being the first rent due date more than 365 days after the commencement date.

We are considering increasing by 3%, would this be reasonable?

I’d appreciate any advise on the process to do this. Research on this forum has pointed to issuing a Form 4, however, this refers to property rental in England and we are in Northern Ireland.

If we were to write to them advising of our intentions and then issue a new AST would this be suitable?
Could we amend the rent increase clause to state that it will increase by 3% annually going forward.

Are there any other implications to consider?

Any advise would be appreciated.

Ann



Comments

The Forever Tenant

22:41 PM, 23rd January 2020
About 4 weeks ago

There's a lot of factors in play here than simply saying is a 3% raise s good idea.

How does your property compare to others in the area? Is the rent you charge the same as a similar property?

How are the tenants? Are they good tenants that don't cause any issues?

Have they caused you any expense? Are they ringing you constantly about having the most mundane thing repaired.

Some say that a good tenant that looks after a property and pays on time is a hard thing to find and raising rent may make them look elsewhere. You never know who you might get next.

I can't help with the specifics of the legal notification of the rent increase, but there are several knowledgeable people on here that can assist.

As for your final comment about a definite 3% raise each year, I would ask that you don't add that (as you would expect from a tenant). My thoughts are that 3% is above the average wage increase each year and you would likely have your tenants even more out of pocket each year, making the property even Less affordable as time goes on. I would suggest seeing what the market suggests before making a regular increase.

Ivan Ratnayake

0:03 AM, 24th January 2020
About 4 weeks ago

I know there are some landlords that out of principle increase the rent every year. My personal attitude has always been to charge a little less than market rent with aim of keeping tenants longterm. A few % increase as a matter of course annually, might make a tenant look elsewhere. Having said that the type of increase you are talking about after 3 years sounds more than reasonable. However, think carefully: When you then factor in voids, readvertising, redecorating, time taken to show prospective tenants around, etc, I have never thought it was worth it for £30- £50/month. 2 years of a rent increase could be easily wiped out by all the above expenses incurred with getting a new tenant, quite apart from the unknown Xfactor of a new tenant.

Chris Harris

10:33 AM, 24th January 2020
About 4 weeks ago

I certainly wouldn't box myself into the corner of a fixed sum per annum. Depending in market conditions it could be too high, or too low.

Matarredonda

10:48 AM, 24th January 2020
About 4 weeks ago

For many years I never increased rents but then found I had fallen very much below the average as always let at a most competuve rate anyway.
These days I tend to increase around 1.5% per year as believe to be fair since Government policy has made renting far less attractive and other costs such as property management costs, where applicable, have increased by far more.
Insurance costs, accountancy costs etc all increase on a regular basis as does any mIntenance/repair work required.
All my tenants have been with me for many years and if you have the conversation with them about true costs, etc mine, at least understand.
So in short if you have not increased rent since 2017 a 3% increase seems fair to me so long as you don't infringe any terms of the rental agreement.

Simon M

11:20 AM, 24th January 2020
About 4 weeks ago

Assess each tenant and property individually, how much you value each tenant individually, and considering market rates for similar properties. Raising rent will often prompt a tenant to think about whether to stay. If they leave, you may well lose more than you hoped to gain.

Austyn at H D Consultants

11:50 AM, 24th January 2020
About 4 weeks ago

When I was a tenant, my landlord would raise the rent by 10% every 6 months. When I questioned this he said he likes to keep fresh new faces in the property.

This was in 2005, my first pad. Started off as £500pm for a canal-side 1 bed flat in Maldon. I stayed for 18 months before the rent increases forced me to make the jump onto the property ladder and leave renting behind.

Looking back, I think its more likely he didn't want to deal with the property condition complaints and it was easier to get new tenants and quickly bodge something back together between tenancies.

3% is not a big deal and you need to raise your rents to stay profitable. Go for it.

Ann

11:56 AM, 24th January 2020
About 4 weeks ago

Many thanks for the comments, much appreciated. The tenants are all good and are minimal work. We are happier having long term good tenants and all of the current tenants want to be long term, we definitely do not want to put them off staying but don't feel an increase after 3 years in unreasonable. We'll exclude the annual increase idea though.
The rents in the area are variable but I'd say we are currently under market rate for all of our properties by at least £50pcm. The tenants look after the properties well, which is more important. Additionally, rental costs here in NI are significantly lower than in England so a 3% increase will only add approx £15pcm. All of the tenants receive UC which covers their rent, and does increase with inflation. Whilst our landlord costs i.e insurance and rates (we don't have Council Tax) have increased. An increase is really to keep our yield/return in balance, it doesn't increase it.
So, we just need to confirm the exact process to do so.

Dave

12:41 PM, 24th January 2020
About 4 weeks ago

In my opinion all Landlords should be increasing rents in excess of 3% to demonstrate to the government that if Landlords are going to be constantly penalised and abused it will have a knock on effect on tenants. If rents rise sufficiently the government may be forced to take action on policies like S24. They will listen to tenants complaints rather than a Landlord. I have raised my rents significantly since the introduction of S24 and sent information packs to all my tenants inviting them to visit their MP's and explaining that the rise is forced on me by the governments stance towards the PRS.

The Forever Tenant

20:25 PM, 24th January 2020
About 3 weeks ago

Reply to the comment left by Dave at 24/01/2020 - 12:41
I think the issue with vastly increasing rents is it won't get the government to backtrack, but instead they will slap even more regulations and restrictions on renting. Potentially including rent controls.

Dave

7:05 AM, 25th January 2020
About 3 weeks ago

Reply to the comment left by The Forever Tenant at 24/01/2020 - 20:25
Possibly rent controls but they would be difficult to Police. Look at Ireland where S24 was reversed and even incentives put in place to entice landlords back into the market as a direct result of rental increases. If we don’t learn from history we may as well close the doors now.

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