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With demand high and rental prices on the up, it might seem like a great time to be a landlord. However, there are still plenty of challenges on the horizon.
The impact of the cost of living crisis is being felt in all corners. An increase to mortgage payments brought about by high interest rates can eat into the profitability of your property. You are then left with the decision to either accept a reduced yield or put the rent up, which no one likes to do during such a turbulent time.
Impending regulatory changes also need to be factored in: the rent freeze in Scotland is scheduled to end in March; commercial lets will be required to have a minimum EPC rating of E or above from April; and further news is expected on the Renters Reform Bill, which could require investment to meet new safety standards.
Where is the Rental Market Heading?
Private rental prices in the UK rose by 3.8% in the 12 months to October 2022 – the largest percentage change since the data started being collected in January 2016. That trend is expected to continue with demand high and supply low – according to Propertymark, an average of 11 prospective tenants registered for every property across 2022.
High mortgage rates will only amplify this by making it more difficult for first-time buyers to get on the property ladder, leaving renting as their only option. At the same time, the decrease to rental yields may encourage some landlords to sell up. Incoming legislation is also set to put landlords in a position where they will need to fork out for upgrades to their property, so they may be keen to exit the market beforehand.
These factors only serve to widen the imbalance between supply and demand, forcing prices up further.
How to Legally Increase Rental Prices
The potential for increased rental yields in 2023 is a great opportunity for landlords.
However, raising the rent you ask your tenants to pay is always something to be approached delicately and with empathy. There are a few things to bear in mind too.
When to Increase the Rent?
If your tenants are on a rolling weekly/monthly contract, you can typically adjust the rent once a year without their agreement. Fixed-term tenancies – usually six or 12-month contracts – can only be changed with the consent of the tenant unless otherwise stipulated in the tenancy agreement. If they do not agree, the rate can only be increased when the fixed term ends.
How Much Can You Increase Rent By?
According to the Government, any rent increases must be “fair and realistic”. This essentially means in line with equivalent properties in the local area. If the tenancy agreement includes a procedure for rent increases, you must stick to it.
Section 13 Procedure
Through section 13 of the Housing Act 1998, landlords can put up the rent on assured tenancies – periodic or shorthold – by giving the appropriate notice. This can only be done once every 12 months and not within the first 12 months of a tenancy. However, the notice can be challenged by the tenant.
How to Increase the Value of Your Property
If you’re keen to take full advantage of the potential to maximise your rental yields, it may be worth investing some money into your property. Whether it’s just a fresh coat of paint in every room or a complete bathroom overhaul, there are many ways you can increase the rental price your property could achieve.
Fix Superficial Defects
This is probably the easiest way to boost your property’s value. If the walls are dirty or the paint is peeling away, give them a clean and a fresh coat to reinvigorate the space.
Mouldy sealant in kitchens and bathrooms can be particularly off-putting to prospective tenants. Not only is damp bad for their health, but it can also be a pain to keep on top of. And, of course, have a declutter if you’re letting a furnished property – this will give it a more attractive appearance.
Optimise Space
It’s important to make your property feel as spacious as possible – tenants understandably want to feel that they are getting their money’s worth.
Incorporating sufficient storage is extremely important in rental properties. Putting up shelves in rooms with high ceilings provides this and does not take away any floor space.
Fitted wardrobes are great for making full use of space – particularly in rooms that have an awkward shape. This saves your tenant from having to invest in expensive furniture that they’ll then need to fit in another property if they decided to move on.
Energy-efficient Upgrades
From April 2025, the minimum EPC rating of domestic rental properties is set to be increased from E to C. It’s a good idea to start working towards that if you want to remain in the market.
There’s no escaping the fact that this is likely to require substantial investment. While the installation of double or triple-glazed windows and smart technology to control the central heating are a good start, more significant work will be required.
You could consider having solar panels installed or replacing your boiler with an air-source heat pump. Loft and cavity wall insulation will also be extremely helpful as they enable the property to retain more heat.
With energy prices at extremely high levels, a greener home will no doubt be enticing for prospective tenants.
Upgrade the Garden
Everyone developed a greater appreciation for their outside space when the coronavirus pandemic sent the UK into lockdown. Making your property’s garden an enticing place to be can certainly push up the value.
The key is to keep everything low maintenance. If it’s not, the garden could quickly become overgrown and leave you needing to redo the work should you need to find new tenants.
Young people are less likely to spend time tending to the garden, so if you’re targeting young professionals then hardier plants and fences rather than hedges are the way to go. They’ll no doubt appreciate outside seating for entertaining too.
Families, meanwhile, will value a grassy area (make sure they have a lawnmower available or use an artificial turf), a patio and storage for bicycles, paddling pools, etc.
In conclusion
The year ahead can be whatever you make of it. You can opt to sell up and avoid the potential strain that could be placed on your finances or look to capitalise on the high demand and send your rental yield skyrocketing.
