Will Rents Rise?
As we look ahead to the implementation of the Renters’ Rights Bill, it’s clear that significant changes are on the horizon for the private rented sector. While the Government is unlikely to alter the major headline reforms, we already have a strong sense of the direction these legislative changes will take.
The Renters’ Rights legislation is moving forward rapidly. Since this was a Labour manifesto pledge, it’s expected to pass through the House of Lords relatively quickly and return to the Commons for final approval. The legislation could be in force by summer 2025. While many landlords are concerned, not all changes will necessarily be detrimental.
Rent Changes
The new rules introduce several changes regarding rent and rent increases:
- Advertised Rent
Landlords will be legally required to include the rent amount in any property advertisement. This aligns with existing Trading Standards guidance, which already classifies rent as material information. The main difference is that this will now be a legal obligation rather than guidance. - Bidding Ban
The legislation will make it illegal to encourage tenants to bid above the advertised price. This may lead landlords to advertise properties with higher rent expectations, much like in estate agency where properties are often priced to invite offers below the asking price. As a result, this could drive higher rents, as tenants will align with these elevated expectations.
Rent Increases
The new system will prohibit tenancy agreements from including pre-set rent increases.
- Current Approach: Rent increases in contracts often follow inflation indices like CPI or RPI, offering predictability and fairness. However, this can sometimes leave rents below market value.
- Future Approach: Landlords will be able to adjust rents to current market value.
To do this, landlords must issue a Section 13 notice, which has existed since the Housing Act 1988. Changes to the notice include a two-month duration and restrictions on serving it within the first 12 months of a tenancy. These updates won’t significantly impact landlords, as the notice can simply be issued earlier when needed.
Appeals Process
Tenants will continue to have the right to appeal rent increases or initial rent levels if they believe they are excessive.
While this aspect of the Section 13 process might seem like a drawback, most tenants are unlikely to appeal if the rent reflects fair market value. The aim is to prevent tenants unfamiliar with local rents from being overcharged.
Interestingly, landlords will no longer be allowed to verbally negotiate rent increases. Instead, the process must begin with a Section 13 notice. Negotiations can only occur if they result in a rent below the notice level.
To avoid appeals, some landlords may find it advantageous to set rents slightly below market value. This minimizes costs associated with preparing evidence for tribunals and reduces delays caused by the appeals process.
Rent Levels
Contrary to popular belief, landlords and agents do not directly set rent levels. Rents are determined by what tenants are willing to pay. If tenants offer more, the initial assessment was low. If there’s little interest, the rent is too high.
While the new rules may lead to higher advertised rents, they won’t directly change the market value of properties.
Opportunities in the Market
Some landlords are considering exiting the market due to these changes. However, this could create opportunities for those who remain. A reduced supply of rental properties is likely to push up rental values as tenants compete for the limited housing available.
The upcoming reforms may bring challenges, but they also present opportunities for proactive landlords to thrive in a changing market.
Watch this space …
