Should I raise rent in line with RPI or CPI?

Great question Alan and one which may well attract interesting debate.

In my opinion it is dangerous for landlords to use RPI or CPI as a basis to increase rents. An excuse maybe but nothing more.

Rental values are set by the local market. For example, I've not increased the rent on some of my properties for several years. I've also reduced a few when re-letting and increased others. Like any landlord, I look upon setting rent levels as a business decision. I do check local rent levels regularly and if there is an opportunity to increase them I may do so but only after much consideration. For example, if my tenant decides to move out I will probably have to redecorate and it will definitely cost me money in terms of time and hassle to find a new tenant. I might also end up with a void period and a lower rent than I was getting if I'm very unlucky so I do think carefully before doing anything. If I do plan to increase rents I arrange to meet with my tenants or at least have a chat with them over the telephone. I could just send them a section 13 notice but that's a very cold approach strategy and I could very easily get a letter back giving 30 days notice so I don't do it. I fully recommend rent increases by agreement, confirmed in writing once agreed and counter signed by the tenant. The third option is to issue a new AST but that involves re-protecting the deposit, issuing a new deposit protection certificate and new prescribed information so I avoid that option too.

I tend not to offer to reduce rent if the market goes the wrong way but I have done so on occasions in order to retain good tenants.

Does that help?
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very interesting comments, thankyou. I think I may have undervalued it when first letting it, it is a very nice house with 3 bathrooms, and private parking, decked garden, woodfloors etc and it is on the edge of the town so commands a Premium.

Reply to the comment left by "Alan Loughlin" at "18/10/2013 - 13:16":

Hi Alan

How do you know you under priced it?

Remember, advertised prices are not the same as prices achieved .

If you have a chat with Tony Sheldon at Letting Supermarket (http://www.lettingsupermarket.com/) he has access to Rightmove Plus which shows rental comparables and prices of properties which have recently been let.

Tony will obviously want to pitch for your business but he's not pushy at all and his offering is well worth listening to 🙂
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good question, well the type of house is rare, there are others but not with the size (3 doublé bedrooms plus another) and 3 bathrooms and in such a good location, when it was let there were not many others being let, and the one i used as a guide turned out to be a smaller versión, also on zoopla it lists it as over 1000pcm, not sure if others find zoopla a good guide.

I tell em as soon as they move in, we do a rent increase every year just like the council does, just like your benefits go up every year. Council rent in the 60's was £2 a week, & if they never increased, well....
To fit bathroom suite 15 years ago was £70, now £200, so u can see we have to put rents up every year, otherwise be no money for repairs.
I tell em first one will NOT be more than £3 a week, & they are happy with this.
And when I give em two month notice to increase rent, they love it, they was expecting it, & think £3 is nothing.
But like Mark, I watch the market, if my rents are already comparable, why cheese the tenant off charging more than what house is worth?
If tenant is brilliant, I don't do it, may leave it a few years.
And also u can do it when new tenant moves in, bring rent into line with market.
I am renowned for 'normal' rents, but for doing all repairs & tenant can stay forever.
About 6 years ago, I was too cheap, till my estate agent mate said these are £550 & yours are £450-I soon sorted that out on any new tenants moving in.

effectively if the rent is not put up at least in line with inflation the it is being reduced.

It needs to be in the tenancy agreement or the tenant has to agree to the increase, otherwise there is a detailed explanation of the procedure on this website:

http://www.tenancyagreementservice.co.uk/rent-increases.htm

I think you may have got the indices the wrong way round, the CPI is usually the lower which my agent uses in its agreements.

Alan, I agree with Mark’s view on this, however when I do consider raising rent I do it at the end of tenancies and I base my rate on the market value for that type of property for the area and I take into consideration the CPI rate (lower than RPI rate).

I have experienced the result of trying rises during a tenancy and on two occasions, as Mark warns, I have had the notice letter sent within days despite having attended immediately to every maintenance issue and other matters during the tenancy period. It could be a sure way, if not conventional, in ending a tenancy without the need to go through the process of issuing notices but I wouldn’t recommend it! Unfortunately price rises are a very emotive subject, especially when it comes as a surprise and more often than not it is a waste of time trying to explain how and why you can justify it.

In terms of Zoopla, I have found that both their rental estimations and their house price estimations are just that and are quite often way off the mark. It’s a shame because they have obviously spent a lot of time and effort in setting up these facilities but the end result is only as accurate as the information they have to work on and that varies too much to rely on a one-off assumption.

As has been said, you really have to be guided by your own market and not the headline news telling us that rental prices are booming. They probably are in London as are property prices but in the real world it’s a totally different story. Some of my properties are either bringing in unchanged rent for nearly five years now and in some cases others are getting me slightly less as well.

If like Mark, you do deal personally with your tenants it probably is worth speaking face to face with them and asking them what price they think is reasonable for the excellent facility you provide for them but if it’s just because you feel you are missing out on a bit of extra income I would work out the sums before making a costly error. £35 is a hefty rise on its own for most families let alone taking into account rising energy bills and other unassociated essentials getting more expensive by the week such as groceries, running a vehicle and everything else.

A rise of £35 is only going to give you a gross rise over the year of £420 but upsetting a good tenant and losing them may give you a void period costing you £860 for each month that your house is empty.

Good luck however you decide to go.

PS I also agree with Mark, you stand to lose more than you can possibly gain, I have often been given notice immediately after an increase even when it is in the agreement. I have one longstanding tenant who is now not paying anything like the market rent but he is great and not likely to move (he's been there 8 years and every time I see him says " I'm never going to move, you know!"). This has now put me where I think I might want to make a small increase so I plan to broach it with him in person and see how it goes down. He will probably agree but if he looks distraught I shall back down. It will never catch up with the market but he takes good care of the property and although it would re-let easily, there are still hassles with any new tenancy and I might not get such a good tenant next time.

I quote average between CPI and RPI, but at the end of the day judge the increase by market conditions. If a tenant replies they wish to vacate due to the increase then we are happy to negotiate. We catch up when the tenant vacates and we re-advertise. I think it's a good idea to have the relevant clause in your tenancy agreement allowing for the increase, but to then judge the situation on a case by case basis at time of renewal.