What is a fair rent increase?

As a buy-to-let landlord determining the appropriate rent to charge can be a delicate balancing act. On one hand, you want to earn a desirable yield on your investment property. But, additionally, you want to foster positive relationships with tenants as this is crucial for long-term success.

To determine the ideal rent for your rental property, consider consulting with a local letting agent who will have the knowledge of the area and its rental market. They will take into account various factors such as location, square footage, EPC rating and unique features like private outdoor spaces.

DESIRED OUTCOME FROM THE INVESTMENT OVER TIME

If you’ve invested in a new build property like an apartment complex, there may be guidelines available based on typical rental costs in the area. However, it’s important to also factor in the added value of having a brand-new property. But for landlords facing rising mortgage costs or those who have recently remortgaged during peak rates, yielding enough profit from rent is also crucial. Consider whether the rental value aligns with your desired outcome from the investment over time.

When considering raising rents in response to rising mortgage costs, landlords must carefully weigh the pros and cons.”

STRIKING A BALANCE THAT BENEFITS BOTH PARTIES

With mortgage rates currently once again on a downwards trajectory, following last years mini-budget, some property investors who let out their homes are still unsure whether to pass rising utility and other costs on to their tenants. While demand in the private rental sector remains high, pushing rents up, the cost of living crisis is affecting millions of households, including tenants. It’s important to strike a balance that benefits both parties.

A recent survey found that 68% of buy-to-let landlords plan to increase their rents when it comes time to remortgage[1]. This is especially true for those who took out fixed rates prior to 2022, as new products have seen significant cost increases. Of those planning to increase rent, 44% said they would raise it between 6% and 10% if their mortgage rate goes up. Additionally, 70% said they would hike rent for both new and existing tenants.

CONSIDER ALL FACTORS BEFORE MAKING ANY DECISIONS

However, around 19% of landlords remain unsure about what they will do, and 13% said they won’t raise rent this year due to strong rental yields or retaining good tenants. As the situation continues to change rapidly, it’s important for landlords to consider all factors before making any decisions regarding rent increases.

As a buy-to-let landlord, deciding whether to prioritise yields or tenants can be a challenging decision. While increasing rent may seem like an easy way to cover rising mortgage costs, it could lead to losing loyal tenants who may not be able to afford the higher rent.

FINDING NEW TENANTS CAN BE COSTLY AND TIME-CONSUMING

It’s important for conscientious landlords to maintain good relationships with their tenants. This includes promptly addressing issues and carrying out repairs, just as tenants are expected to pay rent on time and take care of the property. Yields are undoubtedly important for buy-to-let landlords, along with potential gains from capital appreciation. However, finding new tenants can be costly and time-consuming, with void periods between tenancies causing significant financial loss.

TENANT RELATIONSHIPS ARE CRUCIAL FOR LONG-TERM SUCCESS

When considering raising rents in response to rising mortgage costs, landlords must carefully weigh the pros and cons. While additional rent may cover expenses, deterring good tenants from staying or leaving a property vacant for a month could ultimately lead to financial loss. Finding the right balance between yields and tenant relationships is crucial for long-term success as a buy-to-let landlord.

Don’t forget, our professional friendly advisers are on hand to support you and can help you explore all of your options.

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