Why are landlords increasing rent?

By Georgia Galloway | Wednesday 8th May | 5 minute read

Finbri’s 2024 landlords' report found that due to increasing costs, over 50% of landlords increased rents in 2023. 

Amidst a challenging landscape of soaring living costs, UK landlords face a pressing dilemma: navigating increasing expenses without compromising their investments. According to Finbri’s 2024 landlords report, 56% of landlords raised rents in 2023 as a direct result of increasing costs. The average cost of rent in the UK has increased by 9% in the 12 months to February, the highest annual increase since 2015.

56% of landlords increased rents in 2023

Why are landlord costs increasing? 

Landlords are facing rising mortgage interest rates and escalating property maintenance costs.

Consequently, some landlords have no choice but to contemplate selling properties, while others opt to pass on the costs to tenants through rent increases. 

Mortgage costs 

Over 150,000 landlords will see their mortgage costs rise in 2024, further eating into their profits. BTL mortgage arrears have increased by around 124% from 2022, revealing the impact that growing mortgage rates have on the ability to remain profitable. 

Most landlords (54%) had a Buy-to-Let mortgage on at least one property in 2023. The BTL market amounts to about £300 billion of outstanding mortgage debt, almost a fifth of the overall mortgage market.

Currently, BTL mortgages are at their lowest levels since September 2022, when the cost of mortgages soared after the government's mini-budget.

Average fixed-rate BTL mortgages increased from May 2023 (5.56%) to peak in August (6.79%). They have since fallen back to an average of 5.50%.

Anyone on a 2-year fixed rate from 2021 that expired last year will likely have seen an increase, as average rates in September 2021 were just 1.2%.

High cost of living

The ongoing cost of living crisis has resulted in a substantial rise in the number of people facing financial hardship. In 2021, on average, there were 2,400 searches for "cost of living" on Google in the UK. In 2022, this had increased to 74,000 searches on average a month. And last year, average searches for "cost of living" in the UK increased to a staggering 165,000 searches a month. 

In just 2 years, average monthly searches about the cost of living in the UK have increased by 6,775%.

And landlords are acutely aware of the problem. Second only to inflation in terms of concern, a combined 77% of landlords are either 'strongly concerned' (40%) or 'concerned' (37%) about the cost of living in the UK.

This crisis is directly linked to the escalating cost of essential goods and services, intensified by the impacts of the Russian invasion of Ukraine. Despite the availability of support from lenders and debt advisors, many individuals struggle with financial difficulties, and tenants and landlords are both facing issues as a result.

Inflation

Throughout 2022, inflation soared to its highest level over four decades, peaking at 11.1% and persisting in double digits for seven consecutive months. 

Since then, inflation has dropped to 3.2%. Despite this decrease, it remains above the Bank of England's targeted inflation rate of 2%.

Inflation significantly impacts landlords, particularly through its influence on interest rates. When inflation is high, interest rates tend to rise, increasing mortgage interest payments for landlords with variable-rate mortgages or those seeking to remortgage. 

For instance, in 2023, 54% of landlords held Buy-to-Let mortgages. During the last quarter of that year, an 18% increase in BTL mortgages fell into arrears, indicating the strain inflation-induced interest rate hikes can place on landlords' financial obligations and property investments.

A combined 85% of landlords are either 'strongly concerned' (41%) or 'concerned' (44%) about inflation in the UK. 

Increasing operation costs 

Operational expenses, like energy efficiency upgrades and compliance with new laws, add to landlords' financial pressures. 

Repair costs 

Research conducted by Help Me Fix indicates that maintenance costs consume more than a fifth of the typical rental income.

The long-term effects of these expenses on rental properties estimate that landlords may shell out over £34,000 on an average of 72 maintenance and repair tasks within a nine-year ownership period.


What will landlords do to cover additional costs? 

When faced with the challenge of covering additional costs associated with property ownership, landlords must carefully consider their options. Our 2024 Landlords report found that when experiencing additional costs, landlords would do the following:

  • Raise rents to cover any additional expenses - 51.26%
  • Sell rental property/properties - 31.66%
  • No change - 33.11%
  • Other - 0.40%

How much can a landlord increase rent? 

There is no set cap on rent hikes for private landlords, but any increase must be deemed ‘fair and justifiable’. Assessing a fair rent adjustment involves considering shifts in the local rental market, inflation trends, and the state of the property. 

What is a Section 13 rent increase?

Under Section 13 of the Housing Act 1988, landlords are granted the authority to adjust rent on periodic assured or assured shorthold tenancies by issuing a formal notice of increase in the designated format to the tenant.

What is a rent increase notice?

A rent increase notice in the UK is a formal document issued by a landlord to notify a tenant of an upcoming increase in their rent. This notice typically includes details such as the new rental amount, the effective date of the rise, and any relevant terms or conditions.

How often can a landlord increase rent? 

In a periodic tenancy, which operates weekly or monthly, the landlord can only raise the rent once annually with consent. 

The landlord can only increase the rent with the agreement in a fixed-term tenancy with a predetermined duration.

In what scenarios can a landlord increase the rent 

  1. Growing demand for rental properties: Increased demand in a city like Birmingham may prompt landlords to raise rents to match the competitive market, where the average rent has increased by 8.2% from April 2023 to 2024.
  2. Property upgrades: Renovations or improvements to rental properties can justify rent increases to reflect added value.
  3. Inflation and rising expenses: Landlords may adjust rents to cover rising costs like property taxes, maintenance, and utilities.
  4. To keep up with market rates: If similar properties in the area have higher rents, landlords may raise their prices to remain competitive.
  5. Mortgage rate increases: Higher interest rates could lead landlords to raise rents to cover increased mortgage payments.
  6. Tenant turnover: Landlords may adjust rents at lease renewal based on current market rates, especially if prices have risen since the previous lease was signed.

What's a reasonable rent increase?

While the rent increase must be fair and reasonable, landlords can increase their rents in line with those of other properties in the area. 

What are the average rental incomes per region? 

The average rent in the UK can vary significantly depending on the region. Here's a breakdown of the average monthly rental incomes across different regions of the UK.

Region

Monthly Rental Income (average)

London

£2,102

South East

£1,345

East of England

£1,224

South West

£1,171

North West

£1,024

West Midlands

£955

East Midland

£885

Yorkshire & the Humber

£869

North East

£679

Source: HomeLet Rental Index April 2024


Final thoughts

Landlords are facing rising mortgage interest rates and increasing property maintenance costs.

Although the increasing costs faced by landlords will depend on the number of properties they own and their location(s), landlords either have to take the financial hit themselves or pass the costs to their tenants by raising rents.

Others decide to sell and leave the market, as the increased costs (among other factors) are reducing the attraction of buy-to-let investment. Currently, 32% of landlords anticipate selling their properties in 2024.

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