Challenges Faced by Landlords: Rent Hikes and the Rent Tribunal System

Navigating Challenges: Landlords and the Road Ahead

 

In the current landscape, the government finds itself under pressure from tenant support groups. Recent local elections resulted in a "disappointing outcome," prompting the government to scrap proposed changes to Leasehold legislation and delay the publication of the Renters Reform Bill. While politics may not be my topic of choice, it's crucial to shed light on the issues landlords are grappling with as we await decisions that will shape the future of our rental properties.

 

Just recently, we witnessed the Bank of England Base Rate rise by another 0.25%, marking the twelfth consecutive increase aimed at curbing inflation. Though some landlords enjoy temporary respite due to fixed-rate mortgages, many others are approaching the end of their current arrangements and facing substantial hikes. With the loss of tax relief on interest exacerbating the situation, mortgage costs have become a critical factor that can determine profitability.

 

For highly leveraged landlords, there may be little choice but to sell off a portion of their holdings to reduce debt and monthly expenses. However, those who are less burdened by leverage may have alternative paths to explore. Some landlords are contemplating increasing their mortgages, relying on predictions that interest rates will begin to decline by year-end. In reality, businesses across various sectors are grappling with similar challenges, often resorting to raising the prices of their products—a fundamental aspect of commerce. For us, that entails adjusting rents. I've been taken aback by a couple of noteworthy observations that have emerged from discussions surrounding rent increases.

 

As we delve into these issues, let's approach the topic with a friendly, professional, and warm perspective, understanding the complexities landlords face amid uncertainty.

 

In the realm of rent increases, seasoned landlords and I share the belief that gradual adjustments, made on the anniversary of the contract, are more favourable than sudden spikes after years of stability. Engaging in discussions on this matter reveals that landlords strive to alleviate pressure on their good tenants. It's truly heartening to witness such dedication. However, there comes a time, like the present, when landlords find themselves unable to sustain property maintenance, mortgage payments, and a reasonable profit. Consequently, rent adjustments become necessary.

 

When this moment arises, two distinct tenant reactions emerge.

 

Firstly, there are those tenants who have been following news about rent increases and mortgage rate fluctuations, thus expecting an adjustment. Conversely, some tenants fail to connect mortgage rate hikes with rent levels, particularly if the landlord hasn't made significant investments in the property. They may mention their rising bills without realising that landlords face similar cost increases. Consequently, this situation can lead to confrontations and misunderstandings.

 

It's crucial for landlords to navigate this delicate scenario with empathy, transparency, and effective communication.

 

Let's delve deeper into a few key considerations:

1. Open Dialogue: Foster open and honest communication with your tenants. Explain the reasons behind the rent increase, such as rising mortgage rates, increased property expenses, or inflationary pressures. Help them understand the financial realities you face as a landlord.

2. Timely Notifications: Provide advance notice of the rent adjustment, adhering to legal requirements and the terms of your lease agreements. Early communication allows tenants to plan their finances accordingly and minimises any sudden shocks.

3. Highlighting Value: Emphasise the value your property offers and any recent improvements you've made. Help tenants recognise that the rent increase reflects the quality and enhanced living experience they receive.

4. Compassion and Flexibility: Recognise that tenants may face financial constraints of their own. Consider offering flexible payment plans or discussing alternative solutions that can ease their transition into the adjusted rent.

5. Seek Common Ground: Encourage constructive dialogue, where both parties can express their concerns and find mutually beneficial resolutions. Strive for a harmonious landlord-tenant relationship based on understanding and compromise.

Remember, navigating rent increases requires a delicate balance between maintaining profitability and nurturing positive tenant relationships. By approaching these discussions with warmth, professionalism, and a willingness to find common ground, landlords can create a more harmonious environment for all parties involved.

 

Understanding the Rent Tribunal Process: A Fair and Informative Overview

 

At present, both landlords and tenants generally grasp the concept of the rent tribunal process, albeit with varying levels of detail. However, I've noticed that unrealistic expectations from tenants and apprehension from landlords often lead the latter to consider eviction via Section 21 rather than "risking" a tribunal. It's important to remember that a rent tribunal operates impartially, focusing solely on the process rather than individual cases.

 

Formerly known as the Rent Assessment Committee, the First-tier Tribunal Property Chamber (Residential Property) plays a significant role in resolving rent-related disputes.

 

Here are a few key points to understand:

1. Tenant Applications: Within the first six months of a tenancy, any tenant can approach the tribunal to assess whether the rent is fair. Surprisingly, even after a new tenant has recently signed a contract agreeing to the rent, they still have the option to take this action. Many landlords and tenants may be unaware of this possibility.

2. Existing Tenants and Rent Increases: When landlords offer a new Assured Shorthold Tenancy (AST) to an existing tenant with an increased rent, that tenant can also refer the matter to the tribunal. Additionally, during a statutory periodic tenancy, if a Section 13 Notice or a proposed rent increase is served by the landlord, the tenant can turn to the tribunal for resolution.

Understanding How the Rent Tribunal Operates:

1. Tenant Application: The tenant initiates the application process and should inform the landlord to avoid any unnecessary confusion. Failure to communicate this may lead the landlord to expect the increased rent to be paid, resulting in avoidable disputes.

2. Tribunal's Objective: The tribunal has a singular purpose — to assess whether the proposed rent aligns with local rents charged for similar properties. They carefully investigate the case and subsequently have three options:

   • Agree with the proposed rent, deeming it in line with local rates.
   • Determine that the proposed rent exceeds the local average, subsequently reducing it.
   • Find that the proposed rent falls below local rates, thus increasing it to the local average.

3. Binding Decisions: If the tribunal reduces the rent increase, both the landlord and tenant are legally bound by their decision until a year later, provided the tenant supports the increase.

What Tenants Should Know:

 

Many tenants may not be aware of two crucial aspects. Firstly, some approach the tribunal with the assumption that their rent is excessively high, without being fully prepared for the tribunal's potential disagreement with their assessment.

 

Helping Tenants Understand Rent Increases:

 

While it may not necessarily change their minds, sharing information with tenants who resist rent increases can at least raise awareness of the economic factors behind such adjustments. It's worth exploring resources like the T540 Guidance on Rent Cases for general information about the process.

 

Ensuring Rent Alignment with Market Rates:

 

Unfortunately, Local Reference Rents no longer determine the level of Local Housing Allowance (rent) for universal credit. However, they can still serve as a useful guide. It's important to note that the information provided is not professional advice, but rather a general overview.

 

To gauge whether your rent aligns with market rates, consider comparing the Local Reference Rent with local rents listed on platforms like Rightmove and Zoopla. This will provide a decent indication of where your rent should ideally stand. Keep in mind that rising demand and a shrinking supply of rental properties may impact rent costs due to market forces.

 

By having a clear understanding of the rent tribunal process and equipping tenants with relevant information, landlords can foster a more transparent and informed approach to rent adjustments.

 

What Happens If the Tenant Doesn't Pay the Rent Increase?

 

In the event that you don't hear from the tenant and they choose not to go to the Rent Tribunal, it is reasonable to expect that the increased rent will be paid on time. However, if the tenant fails to pay the increase, it will result in rental arrears. Once these arrears accumulate and reach the equivalent of eight weeks' rent, you will have mandatory grounds for eviction under Section 8. In this scenario, you can issue a Section 8 notice, providing the tenant with two weeks' notice of your intention to initiate the eviction process. It's important to keep the tenant informed about the increasing total of rent arrears through regular email updates.

 

If the rent increase was part of a new fixed-term tenancy and the tenancy comes to an end, or there are only two months remaining, with mounting arrears, you can issue a Section 21 notice, providing the tenant with two months' notice of your intention to use the eviction process.

 

Before hastily proceeding with an eviction, it's crucial to carefully consider the circumstances. Especially if the tenant has been a good tenant thus far, it's essential to weigh the potential consequences. While it's true that there are numerous tenants in search of rental properties, not all of them will be the right fit for your properties. I have learned that a bad tenant is not only financially burdensome but also detrimental to your health and well-being, both of which are more important than mere profit.

 

Additionally, the cost of an eviction can amount to thousands of pounds when legal services are involved. Furthermore, there may be repairs and replacements required upon regaining possession of the property, and the tenant's deposit may be depleted due to rent arrears, or the tenant may not be liable for the costs.

 

Will Rental Demand Decrease?

 

It's a common misconception that all renters are unable to afford to buy property. While there are indeed individuals in this category, there are also those who are not yet ready to make a purchase or prefer the freedom of renting without the hassle of selling. Some individuals rent from private landlords because they cannot afford to buy property in their desired areas, which may be close to family and friends, offer better education options, or be conveniently located for work or transportation. Furthermore, there are people who aspire to own their own homes and are diligently saving for a deposit. Fortunately, there has been some positive news for these tenants, which is also beneficial for landlords.

 

Martin Lewis recently spoke about Skipton Building Society's offering of 100% mortgages, emphasising the importance of a strong rental payment track record as a criterion:

"So, Skipton Building Society's criteria of requiring a good rental track record to prove someone can make mortgage payments is sensible, and so I cautiously welcome it, done carefully after advice, as an option for some."

 

Skipton Building Society stated that tenants aged 21 and over may be eligible for mortgages ranging from 95% to 100% of the property value. However, they must demonstrate a robust history of paying rent, supported by a minimum of 12 months of rental records, as well as pass affordability and credit checks.

 

Unfortunately, the fear factor associated with County Court Judgments (CCJs) seems to have diminished in recent times. Many individuals have multiple CCJs and view them as a regular part of their lives. We often encounter prospective tenants who disclose having CCJs, and it makes us wonder if there are landlords who accept such applicants. We need a reminder for potential tenants that a good credit history truly matters. It benefits not only those of us who take risks by renting to them but also helps them build a positive credit rating and cultivate the habit of living within their means. As every homeowner knows, unexpected expenses can arise, and the past year, particularly due to increased utility costs, has put additional strain on most budgets.