What will be the market rate for forthcoming Section 13 rent increases?

What will be the market rate for forthcoming Section 13 rent increases?

9:51 AM, 4th December 2024, About a month ago 24

Text Size

Hello, When the Renters’ Rights Bill attains Royal Assent next year, and every application for Section 13 annual rent increase qualifies to be referred to the tribunal by your tenant for adjudication, what factors will judges determine a “Market Rate” to be (six months later)?

Will they conduct a survey via Rightmove, use local housing allowance rates in some circumstances, or visit a few lettings agents perhaps, or listen to officers in the council’s selective licensing dept. (Who’ve probably never been in business in their lives?).

The reason it concerns me is that it could conceivably drive down rent to well below what already existed, and from what your tenant was previously accepting, but subsequently thought what had they got to lose by challenging it (encouraged by Shelter and Generation Rent no doubt).

Let’s say I’d just completed a re-roof, plus new windows while scaffolding was up, including increasing loft insulation while the roof is open (to stand between rafters), etc etc., thereby resulting in reduced heating bills for the tenant. An investment of say £20,000.

Apart from an inflation increase like almost all other businesses automatically impose, I would need to gradually recoup part of that large (albeit capital) investment in the property by increasing the rent for a much better equipped house – not be obliged to significantly cut it below what it already was!

This scenario looks to be a very feasible prospect, unless I’ve fundamentally misunderstood this element of the bill as discussed and advanced at Committee stage. It could be revised to below your new five year fixed rate mortgage payment.

Thanks judge for making my slender profit become an unsustainable loss, and the reason for yet another “For Sale” sign appearing.

Thank you,

Andrew


Share This Article


Comments

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

16:00 PM, 4th December 2024, About a month ago

If I think my proposed rent is reasonable and if the tenants disagree, they WILL be evicted one way or another. Legally, of course.

My rents are well below LHA which is well below the 30th percentile of all rents in the area (because LHA was set at the 30th percentile in September 2023 and won’t be uplifted until April 2026 at the earliest).

Tough times ahead for tenants as much as for landlords.

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

16:09 PM, 4th December 2024, About a month ago

There ought to be a formula to determine this.

Take the current house value, add 5% (for SDLT) and add typical purchasing costs. Multiply this figure by BofE base rate + 1%. This should be considered the starting point for a fair return.

Add on typical costs for insurance(s), letting agent fees, EICR, Gas Safety, typical repair costs,
Selective Licensing fees and any Service charge(s) that may be applicable.

Take the final annual cost of providing the property and add a reasonable return for the landlord, bearing in mind the considerable risk that they have taken on.

For a basic rate tax paying landlord, somewhere around £1,400 should cover the rent for a £200,000 home.

PH

Become a Member

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

Sign Up

16:49 PM, 4th December 2024, About a month ago

Reply to the comment left by JaSam at 04/12/2024 - 15:15
I'm not in any debt, it's mortgage free so fortunately I don't have that to worry about , I may have other worries but I'll cross that bridge as and when. Tenants need to realise this isn't a game that we're playing even if they think it is and they need to start thinking long-term ie, the more they keep messing landlords about the more they are digging themselves a bigger and bigger hole to fall into because they will find it very dificult to get another prs home as any diligent LL will delve as deep as possible into their background before letting them into their property to rent. If tenants think they've been given carte blanche to run rings around the LL they are sadly mistaken .

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

17:54 PM, 4th December 2024, About a month ago

I think there ought to be a limit to rent increases.

A limit of BofE Base Rate + 5% would seem reasonable to me, even though I increased mine by more than that this year (it followed a 3 year AST with rent fixed in 2021).

Tenants often financially commit to other things (such as mobile phones, broadband contracts, loans for cars etc.,) and they need some certainty of potential rent increases.

At the next increase, which will be 5% or thereabouts (at least, that’s what I’m thinking today), my tenants will be advised that rents will increase every year. I may even cap it at BofE base rate + 5%.

Peter Merrick

Become a Member

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

Sign Up

22:13 PM, 4th December 2024, About a month ago

Reply to the comment left by Cider Drinker at 04/12/2024 - 16:09
Good luck getting an 8.4% return on a £200K house, with or without rent controls and tribunals! You are more likely to be getting 5-6% on that if you are lucky.

Monty Bodkin

Become a Member

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

Sign Up

8:23 AM, 5th December 2024, About a month ago

Reply to the comment left by Cider Drinker at 04/12/2024 - 17:54"(it followed a 3 year AST with rent fixed in 2021)."

Bulls#*t.

Accommod8

Become a Member

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

Sign Up

11:32 AM, 5th December 2024, About a month ago

Thanks for the comments guys.

As referenced in my Reader's Question, how would a tribunal judge decide (or maybe dictate) market rate where there are two adjacent rental properties-one in great condition, and the other in poor order?

I have such a situation in a cul-de-sac, where my tenants are paying about £175 pcm more than the other (both two bed end terraces with garden). As there are few tenanted properties in the area, is market rent going to be the average of the two? If so, my S13 application for annual rent increase of say 3% would result in an order to reduce rental for at least a year to below what it already was.

If there are any chartered surveyors out there, it would be interesting to get an opinion on how they guess a tribunal judge would make their professional determinations.

I suppose if you have a great landlord-tenant relationship, you might discuss the matter beforehand and hope they don't challenge.

Saul Smart

Become a Member

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

Sign Up

11:46 AM, 5th December 2024, About a month ago

Reply to the comment left by Cider Drinker at 04/12/2024 - 17:54
Totally ridiculous comment.-

"I think there ought to be a limit to rent increases.A limit of BofE Base Rate + 5% would seem reasonable"

Sounds like you ought to join Ben Beadles team you'd fit right in there.

Where in the vast majority of other business are prices capped and only rise once a year not taking into account the suppliers increased expenses? Very few places.

Great- you want tenants to have a known limit on increases? Well ditto- As a landlord I would like to have a known limit on my increases too. But you know what? That ain't happening is it?

Indeed, all the bs coming our way from labour on top of the previous faux tories attacks and other things outside our control, my costs- even if not yours- are due to soar and I've still not passed on costs of previous years that I've absorbed to help my tenants- stupid me I know.

Want rent increases capped? That can only happen if I know my increases are capped.

I've kept my rents at well below market rents for 30+ years now and that's all changing. And that's ONLY because the government's attitude has and is changing to my detriment.

I didn't start this, the gov and anti landlorders did.

But I sure as hell am not exiting the market- this is my full time as a portfolio landlord.

Instead I am adjusting to the tough times ahead with the blunt instrument of rent rises- one of the few instruments I have left- at least for the moment. My massive sec13s been going in for months now up to market to get ahead of any rent rise caps that could force my business to operate at a loss in future years. Some as high as 43%- one of my sec13 tenants worked that out for me.

Yes, I am genuinely distressed at the effect on my tenants- some of 15 years plus. But I repeat- I didn't start this. I am a victim just as much as they are. We're all victims in this, but I'm not going risk going under or face any further undue hardship for my family just so 'they can plan for their mobile phones etc' as you put it. Wish I had that luxury to plan.

PAUL BARTLETT

Become a Member

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

Sign Up

15:58 PM, 5th December 2024, About a month ago

Andrew, when issuing a Section 13 Notice I would always have my own fully costed model for the property including best forecast for the next 12 months, at least, and research the comparable properties offered on all major platforms (rightmove, zoopla, etc) and any local agents with their own sites. Thus it is best practice to provide examples of let or offered properties alongside the section 13 Notice so that Tenants have clarity on their alternatives.
The Valuation Officers will be looking at the let property data though may not be so precise in comparing like properties as you can be. So there is a small risk that offers are more expensive than actual lets, obviously making those lets more important than offers in reaching your fair market price.
In a tight market where tenants stay put the number of actual lets cab be too few to provide let property data, in which case a longer time period may be required to get usable data.

Northernpleb

Become a Member

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

Sign Up

16:48 PM, 5th December 2024, About a month ago

With Regards to Saul ,
I can see like me you have many long term tenants who have relied on you , and you have relied on them . And it has all worked pretty well for years
This is probably the Same for 95% of us. Now through no fault of our own we have no option but to increase rents. And to be super selective in who we rent to know,

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 Automated Assistant Read More