'Landlords are entitled to seek from you the additional costs of paying their increased mortgage instalments by raisin'your rent

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Dear Reader,

I wonder how many of you spend about half of your disposable income on rent alone? Over half of my monthly take-home pay is spent on my housing costs – I don’t think I’m particularly unusual or my circumstances that special.

The costs of housing have crept up, and in some cases leapt up, often not being kept in line with wage increases – or decreases, in some cases.

It is no secret, among us mere mortal workers and economic migrants (that is anyone who has relocated to Jersey to contribute to the economy through work and to take a wage in return), that it costs a small fortune to house oneself in, let alone to live, or perhaps you can only just survive. We’ll talk about what you get for your money and affordability for Messrs Ordinary, their ability to actually live and have a life, soon. The fear about yet more rent-price hikes, given the RPI (retail price index) rate of inflation in Jersey is currently 12.7% is real and terrifying for some.

Why should you care about RPI (even if you don’t know what it means)? The States’ model lease allows a landlord on each anniversary of the tenancy to increase rent by up to the rate of RPI. On monthly rent of £2,300, an increase by December’s RPI would be £292.10 and on a monthly rent of £1,500 the increase would be £190.50.

Your landlord or landlady can choose not to increase the rent year on year or opt for a lesser percentage – the RPI is the ceiling by which they can raise rents. In my journey through Jersey’s rental sector, I have seen variations on the words used in rent review clauses. Most provide for there to be only an upward review – that means if inflation reduces to become negative, like in 2009, your rent does not become any cheaper: it stays the same. In an overcooked market like Jersey’s where rents have increased so markedly, this simply means a lot of people will be paying a lot in rent when all other prices or costs of living are falling.

I presume that you, just like me, had never really examined the government’s Tenant and Landlord webpage in close detail, particularly not to access Statistics Jersey’s reports on RPI. But let me tell you, you should. It is fascinating.

December’s RPI (the most up-to-date) showed that the increase over 12 months was the largest in 40 years. In Jersey, housing alone contributed 5% to the rise in the rate of RPI. The increase between September 2021 and 2022 wasn’t much less – 10.4%.

Jersey’s RPI is 3.5% higher than England. The reason for this is that when Jersey calculates its RPI, it factors in the increased borrowing costs on mortgages – the UK does not.

So, essentially, landlords only share the pain of mortgage rate increases if they choose not to increase your rent year on year by the 12-monthly RPI rate. In short, Dear Reader, you as a renter are the place where landlords look to cover their increased mortgage outgoings from. Despite a rental property being a capital asset which, presumably, will also increase in value with time, landlords are entitled under rent review clauses to seek from you the additional costs of paying their increased mortgage instalments by raising your rent under standard lease terms.

I hear your next question – what about all those cheap fixed-mortgage deals at 1, 2 or 3% over Bank of England base rate when it was 0.25%? Did the landlords have to pass on the benefit of those great deals and cheap borrowing to renters making rents reasonable and cheaper? No.

The blunt reality is that they could have chosen to do that, and maybe they should have been encouraged to do so, but estate agents selling property and at the same time acting as letting agents had no incentive except to drive prices up.

It was not in the landlords’ or estate agents’ interests to encourage or maintain lower prices. The higher the rental yield (income), the more valuable the property and therefore the higher estate agents could sell property for, leading to higher profits.

If a tenant struggled to pay the increased rent, more profit could be made on the lease terminating: fees payable on checking the tenant out, fees payable for rerenting the property at a higher price, and more administration fees payable by tenants. What was the downside? I don’t know – I don’t see one.

Who can you complain to if you feel that the increase in rent is unfair? Again, estate agents were and are the central figures in the housing market – agents who are involved simultaneously in the rental sector and sales sector are incentivised by profits to act in a way that keeps rents high and rising and house prices higher.

And yet, they are not regulated in either line of business and there has not been any body that oversees their conduct or business practices in either market, let alone a code of ethics. In many other places in the world, to address the obvious power imbalances, there are real and significant consequences imposed by the state or a regulator for professionals purporting to be estate agents in order to maintain basic standards and to control their impact on the housing market.

In letting their properties, landlords who act on their own behalf, people I call DIYers, have interests aligned with the estate agents, but my experience of them in the vast majority of instances has been markedly different.

They are realistic about the impact that rent increases have and are mindful of affordability. They seem to be driven and concerned by having a good tenant rather than one who can pay the most. English rent tribunals prevent rent increases if an increase is challenged and found to be anything but ‘fair and realistic’.

In some other places outside Jersey, it is not usual to have a rent review clause in a short lease of 12–24 months – both parties at the end of the period can reassess their positions and apply thought to what should happen to rent.

A new lease can be negotiated with increased rent based on other options in the market, the lease rolls over and continues as it was, or ultimately it is terminated and both parties move on.

During 2022, the Bank of England raised interest rates eight times, from 0.25% to 4%, in an effort to control UK inflation. It won’t have escaped you that the base rate was increased again in February 2023 by 0.25% to 4.25%. But what does this mean for you and me, Dear Reader?

For anyone thinking of getting out of a rental property, Jersey’s house prices rose by 11% from 2021 to 2022. The Fiscal Policy Panel explained this to mean that the ‘price of a median house increased by £100,000’.

I am not sure I understand what a median house is, but it sounds very expensive and with mortgage rates starting above 4.25% this will be beyond the reach of most renters.

The panel forecasts that inflation will peak at 12.8% for March (watch out for this figure to be declared later in April) and drop over the summer – presumably with people turning off their heating – to just below 10%.

All in all, rents could continue to rise significantly for the rest of the year if annual rent review clauses are applied to the maximum and there is nothing in theory to stop landlords, or their agents – the estate agents – from doing this.

Do you get a nicer bathroom or kitchen for your increased rent? No. Do you get a better carpet or nicer curtains (if they are even included)? No. Do you get nicer appliances (if they are even included)? No.

So what will you get? The same for potentially a lot more money.

The only way to get a better deal is to shop around. It is incredibly hard, as there are so few properties on the market, but you will be told that with an eagle eye and the determination you could find something else.

I know your reality and mine. It is just so difficult that this is just not realistic or practical. I think a lot of us feel trapped and unable to change our lot.

I wonder how many people are considering relocating out of Jersey in the next 12 months?

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