How much rent to charge? Some things to consider

When you are letting a new rental property or are looking to let to a new tenant, a key skill for the successful private landlord is being able to work out how much rent to charge. If you charge too much you might put off potential tenants and end up with a long void period, but if you charge too little you will be losing income unnecessarily.

Another factor to consider is that rent levels are not static – they go up and occasionally, though less often, come down with market forces. So you need to monitor market rents to make sure you keep yours as close as possible over time to the local market level.

Average rent figures produced nationally can be misleading because they are skewed by the much higher rents achievable in expensive areas like London and the south east. Regional figures are published by some sources but even they can differ from going rents in specific locations.

‘How much rent should I charge?’ calculators

There are a number of ‘How much rent should I charge?’ calculators available for the UK, such as this one provided by OpenRent.

These will give you a guide to the rental price of properties in the UK, but should be used with some caution when you are deciding precisely how much rent to charge your tenants.

How much rent to charge - some things to consider

How do inflation and time affect how much rent to charge?

Some landlords make an annual increase based on inflation and what’s going on locally. This is usually just a small percentage annual increase and most tenants understand that since other prices are rising, why not their rent? So long as it’s a reasonable amount they will usually accept the increase without question and get used to the annual rise.

Other landlords take the view that they should reward long standing tenants by leaving the rent level unchanged over time. They reason that a small hit on the rent is more than compensated for by the costs involved in a void period if they lose a good tenant. Finding a new tenant and re-letting, with all that goes with it, is a real hassle.

What you don’t want to do is allow the rent to get so far ahead of local market rates that tenants start to look around for alternative accommodation.

But the danger of leaving the rent level the same is that over time it gets so far behind the market rent that it’s just too much of a jump for the tenant to swallow if you try to put it up to the market level all in one go.

For example, a tenant paying £6,000 per year in rent and staying ten years, with say a three percentage point annual increase in the market rent year on year, would be underpaying by around £2,000 by year ten – a discount of 25 per cent at the year 10 level of £8,000.

Getting the price spot on, or at a slight discount on the market level, will not only quickly attract tenants to your rental, avoiding long void periods, it will also maximise the return from your investment – you want to be fair, but at the same time you don’t want to be a mug!