Sitting tenants see rents rise as gap with open market narrows

Sitting tenants see rents rise as gap with open market narrows

0:01 AM, 20th May 2024, About 2 months ago 5

Text Size

Tenants renewing their tenancies are seeing rents rise at a faster pace than those moving to new homes, research reveals.

According to Hamptons, the average rent paid by a tenant renewing their contract rose by 8.3% over the last 12 months, compared to 6.4% for newly let properties.

It says the trend is due to the significant increase in rental costs on the open market over the past two years.

Historically, landlords have tended to keep rents below market value for existing tenants – but rising costs are putting pressure on them to raise rents.

And, so far this year, 88% of tenants who renew a tenancy have seen rents go up.

‘Years of no or below-inflation rent increases’

The firm’s head of research, Aneisha Beveridge, said: “Many tenants had enjoyed years of no or below-inflation rent increases, particularly when rents weren’t rising much on the open market and mortgage costs were falling.

“Landlords were often content with a small gap between the market rate for their home and what their tenant was paying.

“However, over the last two years, strong rental growth on the open market has meant that the gap between market rates and what some tenants were paying rose significantly.”

She added: “Tenants fortunate enough to be protected from higher rents by their landlord or longer contracts are increasingly seeing their rents rise.

“These increases for renewing tenants tend to be lower and stretched over a longer period than for newly let homes, often meaning tenants still pay below market rate.

“But even so, these hikes can still add up to hundreds of pounds a month.”

Tenants are still paying £178 per month less

Despite the increase, tenants renewing their contracts are still paying £178 per month less on average than those moving into new homes.

Hamptons says the gap is a major disincentive for tenants to move because they often end up living somewhere with less space for more money.

The report also found that the pace of rent price growth on newly let homes is starting to slow down.

After peaking at 12% in August 2023, annual growth has fallen to 6.4%.

However, the monthly increase in rents edged up to 0.8% in April, the largest increase this year.

This suggests that the pace of rent growth may settle at around 6%, which is still much higher than the pre-pandemic average of 2.5%.


Share This Article


Comments

Neil P

Become a Member

If you login or become a member you can view this members profile, comments, posts and send them messages!

Sign Up

10:25 AM, 20th May 2024, About 2 months ago

This certainly stacks up with my own experience. In low inflation/low interest times it's easy to keep rents the same. I never put rates up unless a tenant moved out, and was surprised when I realised I'd not put rent up on one property for over 10 years. With rising costs and interest rates of course we have to increase rent. I'm sure the rise being higher now compared to new rents is just a lag as landlords react behind the inflation curve.

Cider Drinker

Become a Member

If you login or become a member you can view this members profile, comments, posts and send them messages!

Sign Up

19:08 PM, 20th May 2024, About 2 months ago

The sequence of events is as follows.

1. Inflation rises.
2. Interest Rates rise.
3. Rents rise.

It could take a year or two to get from Step 1 to Step 3 because…

…some landlords are on fixed rate mortgages
…some landlords don’t like to increase rents (I never enjoy giving my tenants news of a rent increase).

When looking at rent increases, it’s useful to look at the increase over a number of years (I’d suggest 5 years) and to consider the reason that rents are rising (interest rates, Section 24, ridiculous regulations and increased risks imposed on landlords).

Nick M

Become a Member

If you login or become a member you can view this members profile, comments, posts and send them messages!

Sign Up

20:22 PM, 20th May 2024, About 2 months ago

Historically I haven't increased existing tenancies. However with rent cap discussions and possible limits on rent increases in the future, I have now increased close to market rate.

Reluctant Landlord

Become a Member

If you login or become a member you can view this members profile, comments, posts and send them messages!

Sign Up

20:49 PM, 20th May 2024, About 2 months ago

Reply to the comment left by Nick M at 20/05/2024 - 20:22
ditto. ALL my ASTs get not only an annual rent review (I used to not bother) but they all get a rent increase too. I am still slightly behind market rate in some cases just so the (good) tenant decides its less hassle not to bother moving.

For the T its not about always about moving for cheaper rent( IF that is even possible!) , but weighing up removal costs, time and effort and finding the next deposit before securing the next rental for example. Also new LL unknown!

Unless there is a major reason to move (loss of job/ job move) then I think many T's just stay put. They realise the rental pool is becoming smaller by the day...and of course they wont be the only applicant either....

Michael Booth

Become a Member

If you login or become a member you can view this members profile, comments, posts and send them messages!

Sign Up

6:35 AM, 21st May 2024, About 2 months ago

Simple selective licencing, higher taxes, higher insurance, higher finance cost, higher repair costs,higher certification costs, higher legislation cost only equal HIGHER RENTS IT IS NOT ROCKET SCIENCE AND LIEBOR WANT TO INTRODUCE A RENT FREEZE, , CAP, you couldn't make it up .

Leave Comments

In order to post comments you will need to Sign In or Sign Up for a FREE Membership

or

Don't have an account? Sign Up

Landlord Tax Planning Book Now