Should landlords embrace long-term tenants or prioritise turnover to increase rent?
Quick Answer
Prioritise attracting and retaining long-term, high-quality tenants. While rent increases are appealing, high tenant turnover often leads to significant costs and voids that negate potential gains.
From May 1, 2026, Section 21 'no-fault' evictions were abolished in England, fundamentally shifting the balance between long-term tenancy and frequent tenant turnover for UK landlords. This legislative change, coupled with the inherent costs of re-letting, means that embracing long-term tenants often represents a more stable and financially prudent strategy than prioritising turnover solely to achieve marginal rent increases.
### Does frequent tenant turnover lead to higher profits?
Frequent tenant turnover does not inherently lead to higher profits for landlords. While it might seem appealing to regularly adjust rents to market highs, the associated costs and risks often erode any potential gains. Each tenant changeover incurs direct financial outlays and indirect opportunity costs that can significantly impact the net income from a property.
Consider the direct costs involved: void periods, where the property generates no rental income, can easily range from two to six weeks between tenancies. For a property renting at £1,000 per month, a two-week void period represents a £500 loss. Additionally, re-letting fees, which might include marketing, tenant referencing, and new tenancy agreement administration, can quickly accumulate, often totalling several hundreds of pounds per cycle. Furthermore, properties frequently experience more wear and tear with each new occupant, potentially necessitating more frequent maintenance or minor refurbishment between tenancies, adding further to the expense column.
From a tax perspective, income tax on rental profits for individual landlords is already high, with basic rate taxpayers facing a 20% credit on finance costs instead of full deduction, and new property income tax rates from April 2027 will be 22% for basic rate, 42% for higher rate, and 47% for additional rate. Maximising gross rent doesn't automatically mean maximising net profit when expenses are high. Focusing on tenant retention minimises these recurring costs, leading to more consistent and predictable net income, which is paramount for long-term portfolio growth and stability.
### What are the financial benefits of long-term tenants?
Long-term tenants provide significant financial benefits through reduced void periods, lower re-letting expenses, and decreased property maintenance costs. The most direct financial gain comes from minimising the time a property stands empty, ensuring a continuous rental income stream. A property with a stable long-term tenant might experience a void period of only a few days or weeks over several years, compared to multiple void periods annually if tenants are frequently changed.
Reduced re-letting costs are another substantial advantage. Each time a property is re-let, landlords typically face agency fees for marketing, tenant sourcing, and referencing. These fees can often amount to a month's rent or more. For example, if a property rents for £1,200 per month, incurring a £1,200 re-letting fee every year for a new tenant amounts to a 10% reduction in annual gross income just from re-letting costs. With a long-term tenant, these fees are incurred far less frequently, if at all.
Moreover, long-term tenants often take better care of the property. They treat the rented accommodation more like their own home, leading to fewer instances of damage and reduced expenditure on repairs and maintenance. This translates into less stress and fewer unexpected costs for the landlord. When maintenance is required, a good relationship with a long-term tenant can facilitate smoother access and communication, reducing the time and effort involved in resolving issues. This stability is invaluable, particularly with an average Bank of England base rate of 3.75%, where predictable income is key to managing mortgage payments and cash flow effectively.
### How does the Renters' Rights Act 2025 impact tenant retention strategies?
The Renters' Rights Act 2025, which abolished Section 21 no-fault evictions from May 1, 2026, profoundly impacts tenant retention strategies by making it more challenging to remove tenants without a specified legal ground. This change elevates the importance of securing good, long-term tenants from the outset and fostering positive landlord-tenant relationships.
Previously, landlords could regain possession of their property relatively easily after the fixed term of an Assured Shorthold Tenancy (AST) expired, providing flexibility to re-let at higher market rates or sell the property. With Section 21 gone, landlords must now rely on Section 8 grounds for possession, which generally require a breach of tenancy (e.g., rent arrears) or other specific circumstances (e.g., landlord intends to sell, move in, or undertake major works). This shift means that proactively managing tenant satisfaction and addressing issues promptly becomes even more critical to avoid disputes that could lead to complex and lengthy eviction processes.
For investors, this legislation reinforces the need for robust tenant vetting processes and a focus on creating a desirable living environment to encourage tenants to stay. The cost and uncertainty of regaining possession under Section 8, coupled with potential void periods during the process, far outweigh the marginal gains of frequent rent increases. It effectively forces landlords to think more strategically about tenant relationships as an asset, reducing churn to maintain portfolio profitability and minimise legal complexities.
### What are the hidden costs of high tenant turnover?
Beyond the obvious financial outlays, high tenant turnover introduces several hidden costs and risks that can significantly erode a landlord's profitability and peace of mind. One such cost is the increased administrative burden. Each new tenancy requires significant time investment for paperwork, inventory checks, deposit protection scheme registration, safety certificate renewals (such as Gas Safety Certificates, Electrical Installation Condition Reports, and EPCs), and communication with local authorities if applicable. This administrative overhead is a drain on resources, whether the landlord manages the property personally or pays an agent to do so.
There's also the risk of property damage or neglect during void periods or between tenants. While a deposit provides some security, extensive damage might exceed the deposit value, requiring additional funds for repairs. Furthermore, properties standing empty are more vulnerable to security issues, including squatting, vandalism, or burst pipes during winter months, potentially leading to substantial uninsured losses. The risk of inheriting a problematic tenant also increases with higher turnover; despite thorough vetting, some issues may only become apparent after a tenant has moved in, leading to potential rent arrears or property damage that can be costly and time-consuming to resolve. These hidden costs, while not always itemised, directly impact a landlord's net returns and overall investment experience.
### How can landlords encourage long-term tenancies?
Landlords can encourage long-term tenancies through several key strategies, focusing on fair pricing, responsive maintenance, and fostering a positive landlord-tenant relationship. Firstly, setting a fair and competitive rent, rather than consistently pushing for the maximum market rate, is crucial. While market reviews are necessary, a moderate annual increase of, for example, 2-3% (well below the current inflation rate, but demonstrating willingness to retain), can be more attractive to a good tenant than a sharp 10% increase every year, which might prompt them to seek alternative accommodation. According to government guidance, stable rent contributes significantly to tenant satisfaction.
Secondly, proactive and responsive property maintenance is paramount. Addressing repair requests promptly and efficiently demonstrates that the landlord values the tenant's comfort and safety. This includes regular property inspections to identify and resolve minor issues before they escalate, such as ensuring all appliances are in good working order or promptly fixing a leaking tap. Tenants are much more likely to remain in a property where they feel their concerns are heard and acted upon.
Finally, fostering open communication and a respectful landlord-tenant relationship can significantly boost retention. This involves clear communication from the outset, transparent handling of issues, and sometimes, a degree of flexibility, for example, regarding minor alterations to the property or rent payment dates in exceptional circumstances. Offering renewal incentives, such as a slight discount on rent for signing another long-term lease or a small upgrade to the property (e.g., new white goods), can also be effective. These strategies build loyalty and make tenants less likely to move, saving landlords the significant costs associated with tenant churn and maintaining consistent income, which is particularly important with the current 25% Corporation Tax rate for companies with profits over £250k and 19% for those under £50k.
### Should landlords offer rent reduction or incentives for longer tenancy agreements?
Offering rent reductions or incentives for longer tenancy agreements can be a strategic move to secure stability and reduce overall costs. A minor reduction in monthly rent, perhaps £50 less than the current market rate on a £1,000 per month property, might seem like a loss, but it is often offset by avoiding void periods and re-letting fees. For example, saving £1,200 in re-letting fees and avoiding a two-week void (worth £500) by offering a £600 annual rent reduction (from £12,000 to £11,400) still results in a net gain of £1,100 for the landlord.
Incentives don't always need to be direct rent reductions; they can include property upgrades or services. For instance, offering to replace an outdated appliance, refresh a room with new paint, or cover the cost of professional carpet cleaning upon renewal demonstrates appreciation and provides a tangible benefit to the tenant. These gestures can significantly influence a tenant's decision to stay, particularly if they are considering moving due to minor dissatisfactions with the property's condition.
The decision to offer such incentives should be weighed against the specific costs of tenant turnover for that property. For properties with high re-letting costs or in areas where void periods are common, these incentives become even more compelling. It is a proactive approach to cost management, ensuring a consistent income flow and minimising the risks associated with tenant churn, especially with the increased complexity of gaining possession under the new Renters' Rights Act 2025.
Steven's Take
The shift away from Section 21 evictions has solidified what smart investors have always known: tenant retention is king. Chasing an extra £50 or £100 a month in rent by constantly rotating tenants is a false economy. The costs of voids, re-letting fees, and potential damage or legal issues with new tenants quickly eat into any perceived gain. My focus has always been on creating a quality home, setting fair rents, and being a responsive landlord. This builds trust, encourages tenants to stay for years, and ensures a consistent income. With the Bank of England base rate at 3.75%, cash flow is critical. Stability means fewer headaches and more predictable profits. Look for the long game, not the short-term bump.
What You Can Do Next
Review your current tenancy agreements and understand the notice periods required for both you and your tenants. This is crucial for planning renewals under the new Renters' Rights Act 2025.
Access the official government guidance on the Renters' Rights Act 2025 via gov.uk/government/publications/renters-reform-bill-factsheets to understand the new grounds for possession.
Calculate the actual cost of tenant turnover for your properties, including average void periods, re-letting agent fees, and typical refurbishment costs between tenancies. Use this data to inform your rent review strategy.
Research your local market rental rates to ensure your rent is competitive but fair, avoiding aggressive increases that might prompt good tenants to leave. Websites like Rightmove and Zoopla provide good indicators.
Implement a proactive maintenance schedule for your properties and ensure a clear, efficient system for tenants to report repairs. Being responsive reduces tenant frustration and encourages loyalty.
Consider offering renewal incentives, such as a minor rent discount for signing a longer lease or a property upgrade, to encourage good tenants to extend their stay. Discuss these options with your letting agent if you use one.
Consult with a property lawyer or specialist letting agent regarding the new tenancy rules and their impact on your specific portfolio. The Residential Landlords Association (RLA) or National Residential Landlords Association (NRLA) offer advisory services and resources for members.
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