The price gap between rents agreed for new tenancies and those for renewals, is unusually high and demand far exceeds supply. Why don’t more landlords tell existing tenants to pay in full, or leave?
The HomeLet Index of new tenancy agreements puts UK average rental inflation for the 12 months to the end of July, at 9.5%. The ONS Rental Index of Private Housing Prices, which tracks only renewals, reports average UK rental increases of just 3%, for almost the same period. The true picture varies greatly from region to region but, without exception, there is an unusually large price gap at the moment between rents agreed for new lets, and on renewal.
Despite this, most landlords are reluctant to tell an existing tenant to ‘Match the market or leave’. When they ask us if they should, we consider four basic points. The quality of the current tenant, what a new one might pay and what costs will be involved, are simple enough. Harder, is judging what the market will be like, when you get vacant possession.
Left: Kent £2,850 pcm. Re-let for in excess of this asking rent, achieving an increase of 27% on the previous rental.
Contradicting the Rachmanite stereotype, even when the net financial gain is both substantial and near-certain, the great majority of our landlord clients choose not to push out good tenants (and most are good) via demands for rents they cannot pay. In part, this is commercially sensible: landlords recognise the value of having reliable people looking after their asset. Good, long-term tenants bring extra value and will agree a fair extra rent. But it’s also because they are human: many landlords know and like their tenants and want to see them prosper. They are not greedy.
Of course, if you are renting and know that you are a ‘problem tenant’, the position is rather different. Your landlord will need to make a judgement about what the market will be like when you have to leave (usually two months). This introduces some uncertainty, but he or she will know that the overall stock of private rental properties is falling and that, right now, new lets are rarely on the market for more than a day or two. With big gains being achieved in some instances (see below), upping the rent could get rid of a problem tenant and secure a windfall. If you are that tenant, it might be time to dig out the suitcases – or turn over a new leaf.
