Are you ready for the new Rent Standard? It's no April Fool

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Article

30 September, 2019

In February this year the Government set out the new policy statement for rents on social housing effective from 1 April 2020. This policy replaces the Guidance issued in May 2014 and will apply to Registered Providers including private Registered Providers of Social Housing and Local Authorities that are registered with the Regulator of Social Housing. The new policy follows a consultation where 86% of social landlords were in favour of the change while 87% of tenants were opposed to the idea.

While tenants may not like the idea of social rents increasing this policy aims to strike the right balance between the interests of existing social housing tenants who pay some or all of their own rent, the need to build more homes, and the importance of ensuring that Registered Providers have sufficient income to manage and maintain their properties.

To put this new policy into context, since 2001 'social rents' have been set based on a formula set by the government, this new policy follows a similar process with the formulas set out in the policy statement.

In 2011 Affordable rents were introduced and set at up to 80% of the market rent (inclusive of service charges).

From April 2015 the government allowed social landlords to charge a full market rent where a social tenant household has an annual income of at least £60,000. This change allowed landlords to make better use of their social housing for properties rented to households with relatively high incomes.

The last significant change, the 'social rent reduction', came into effect in April 2016 and required social landlords to reduce their rents by 1% each year for 4 years. Although there were exceptions to this policy, landlords need to be aware that the Rent Reform effective from 1 April 2020 will not override landlords' statutory obligation to complete the four year social rent reduction as required by the Welfare Reform and Work Act 2016. If the social rent reduction has not been completed by a landlord by 31 March 2020 (because its rent year begins after 1 April) the reduction must be completed before the new policy can be applied.

The key points for Registered Providers to consider before the policy comes into effect on 1 April 2020 are:

  • For the first time the policy will apply to all Registered Providers which includes both Local Authority Registered Providers and private Registered Providers.
  • This policy will not override the obligation to complete the 4 year rent reduction and the new policy can therefore only be implemented once the 4 year rent reduction has been completed where applicable.
  • From 1 April 2020 annual rent increases will be permitted on both social rent and affordable rent properties of up to CPI plus 1% for at least 5 years. Providers will also be free to choose to apply a lower increase or to freeze or reduce the rent.
  • The initial rent is to be no higher than the formula rent, subject to the rent flexibility level - see the policy for full details, if applying any flexibility the provider must ensure that there is clear rationale for doing so and takes into account local circumstances and affordability.
  • Rent Caps will apply as a maximum ceiling on the formula rent and will depend on the size of the property and number of bedrooms
  • Registered providers must not allow rents to rise above the rent cap for the size of property concerned - the rent caps will increase by CPI + 1.5% annually.
  • If a property whose rent has been subject to the rent cap comes up for re-let - and the formula rent remains above the rent cap - the new rent can be set at up to the rent cap level which will have been increasing by CPI + 1.5% rather than the CPI + 1% that the rent would have increased.
  • The limit on rent increases set out in the policy must be adhered to even where a tenant's rent is below formula rent, including if they have previously applied a lower or no annual increase. In these circumstances the provider can only increase the rent to the formula rent when the property is re-let after the tenant has vacated, this will of course still be subject to the rent cap.
  • Property valuations must be set at January 1999 prices and are to be carried out using a RICS recognised method. Registered providers will not be expected to have a valuation carried out for each individual property but they will need to attribute a value to each social rent property to calculate its formula rent. The policy sets out items to be disregarded in the valuation and circumstances under which a re-value might be acceptable.

It is also important for Registered Providers to remember that the above provisions are also subject to 'fair rent' requirements and any tenant who has this protection must not be charged more than the lower of the 'fair rent' set by the rent offer and the formula rent.

This policy should help to provide some of the much needed funding to enable Registered Providers to maintain and expand their current housing stock in line with the needs that have been identified nationwide for affordable social housing.

Please click here to view the Policy statement on rents for social housing.

For more information please contact Jennifer Hankinson or Claire Smith.

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