Saturday, 3 January 2015

What is a Fair Rent Increase?

When we paid a letting agent to advertise and manage our studio flat rental we were guided by their advice on how much rent to charge. During the 3 years they were acting for us we put up the rent once, between tenants, by £20 per month (about 4.5%). Last time we needed a new tenant we used OpenRent, and put the asking price up by another £10 per month. The price we now charge is exactly the same as the median rental value given for the address on Zoopla (I'm not quite sure how this works though - is it a recommendation or just a quotation of what is actually being paid?).

We were overwhelmed by the number of responses we got very quickly after advertising and had several offers of a higher rent from people who wanted to jump the queue. To be honest we found this part of the process quite stressful and it made us realise that part of what you pay the letting agent for is to do the "dirty" work and get you the best price. It also made us realise that we wanted to do things fairly, treat the prospective tenants properly and keep our word when we had accepted an offer . We could certainly have got more money if we had played people off against each other.

My son lives in a very similar studio rental in London for which he pays £900 per month which is exactly double the rent we charge. He is currently negotiating to extend his contract for another year. The letting agent told him yesterday that they propose to increase the rent by over 10% to £1,000. He has gone back to them and said he is prepared to pay an extra £55, but if this is not accepted he will look elsewhere. I think he has done the right thing. He could stretch himself (very thinly) and pay the extra 10% but it simply doesn't feel right that a landlord who has had his rent on the dot from a very reliable tenant should "take advantage" and attempt to get every last penny out of him that he can. It feels like a bit of a kick in the teeth.

I know that rental prices are determined by market forces but I also believe landlords have a responsibility to be fair, see their tenants as individuals, not just commodities and appreciate the fact that someone who they have relationship with (because that is what a landlord/tenant interaction is) is not going to be encouraged to stick to their part of the bargain with good grace if they feel that the landlord simply sees them as a "cash cow". My son's landlord has always been friendly, has given him home made wine and chats with him whenever they meet on the stairs. When he talked with him in person about extending the contract earlier in the week there was no mention of a rent increase. There is no doubt that the letting agent is responsible for advising him that he could squeeze more out of the rental if he tried (after all he gets his cut). My son does not object to paying a bit more, he understands that the landlord needs to make money, it is the steep hike that is the problem.

Should there be some kind of rules about how much the rent on a short-term tenancy can rise? What are the responsibilities of landlords in all this? Having seen the situation from both sides I believe that the sooner we have less people using bad letting agents the better, as re-introducing the personal touch into the situation is far more likely to produce a civilized settlement between the two parties. Unfortunately not all tenants are reliable and landlord protection is definitely needed, but too much reliance on third parties who have a very "cold" and one-faceted business model regarding rentals means there is a strong bias against the tenant.

In a similar way that vegetarians say you should only eat meat if you are prepared to kill the animal yourself, maybe you should only put up the rent by an amount you would be happy to look the tenant in the eye and negotiate yourself. Business needs the personal touch :-)


  1. Hi Cerridwen
    I understand your dilemma - your flat is an investment to make money but to squeeze as much money as possible out of your tenant would be greedy and insensitive. Perhaps the key here is just to be 'fair' and some believe that a fair increase would be to use RPI.

    The story of your son's rent increase is interesting, but sadly very common. As you know, I use a letting agent for my flat. My first tenant had signed a 12 month tenancy and at the end of it wanted to renew. My letting agent suggested putting the rent up by 10% as they said it was the going rate in the area. I agreed, as I didn't know any better. The tenant promptly decided she didn't want to renew and I was fortunate that I didn't have a void period but of course I did pay the fees for the agent to find me another tenant!

    Since then, when a tenant has wanted to renew, I've kept the rent the same (despite the agent's wishes). Of course, I'll probably have to put up the rent at some point but I'll be trying to be as fair as possible. I make a decent profit from the rent and I have no wish to be tarred with the 'evil greedy landlord' brush!

    The 'dirty work' you mention is precisely why I'm a 'hands off' landlord!

  2. Hi weenie, I did think about you when I wrote this post and wondered what your thoughts were - I was hoping I wouldn't be causing offence :-) so I'm glad to hear we're much in agreement.

    A 10% increase might bring my son's rental up to the going rate (the letting agent is actually claiming that he could get 20% if he re-advertised it!) but it's very hard to judge this as there are hardly any comparable properties in the area. The main thing is that it is too steep a rise and he would rather move back into a shared house rather than pay it. The letting agents sometimes just don't seem to get this right for either side. We're waiting for the landlord's response at the moment.

  3. Hi Cerridwen. I have a rental property (not London) and am new to the landlord scene (just over a year). My current tenant rented my property on a 6mth agreement, then on renewal they asked for a 12-mth agreement. I didnt ask for an increase in the rent as I dont think it was necessary. My agent didnt propose one either - but then they are getting their percentage cut and until they are after an increase, I cant see them pushing. I did check the average rental for similar properties and they compare. I am making a reasonable income at the moment from it. When the mortgage comes up for review, I may have a different view on the rent and an increase may be required but at the moment the tenant and I are happy to continue at the agreed rate. Most of the people I know who also have rentals have looked at an RPI rate when considering increases - but then you are talking about a rental in London and London has seen silly values for both house purchase and rental so it could be the location and the demand?
    I hope the landlord's response is positive.

    1. Thanks sparklebeeblog.

      Like you I believe that increases in rent shouldn't be just about getting as much as you can. A happy tenant is much more likely to look after the property and stay for longer which reduces costs for everyone (but means less income for the letting agent :-)).

  4. I live with my tenants as I have a 3 bedroom place so I always have that personal touch added into things. That being said, I'm horrible at raising rent.... possibly to a fault. Usually it takes a few years for me to raise rent and then I don't raise it too much either. But when a roommate moves out and I have to find a new tenant, then I jump the rent up closer to market rates. But I usually go slightly below market rates just so I have a good choice of tenants to choose from (since I will have to be living with them and all....)

    But over 10% is just insane. I would usually do what equates to 3% per year or so when I finally get around to raising rent.

    1. Thanks Zee. Your tenants are lucky to have you as a landlord :-). You're right - market rates have to come into it but there are other things to take into consideration.

  5. Quick update on this: - my son's landlord got in touch with him directly and told him that he had no intention of raising the rent at all. It seems that the letting agent had acted totally off his own bat and without taking instruction from the person who is paying his fees. Incredible.

  6. First off, thank you for your post regarding letting agents. I appreciate how you showed both sides of the coin when it comes to the process of letting flats. Unfortunately, it seems that renting is becoming an increasingly complicated process with many unknowns on both sides. Perhaps by being able to work with a knowledgable and trusted agent it will help to make the renting experience more positive on both ends!