Rent Settlement: Stability or Strategic Challenge?

Under the current ten-year rent settlement, registered providers (RPs) are permitted to raise rents by Consumer Price Index (CPI) plus one per cent from April 2026. This long-term commitment from government offers stability and financial certainty, critical for RPs planning to reinvest in existing homes and deliver new housing for the future.

But history reminds us that all of this can shift. In late 2022, we saw general needs rents for 2023/24 capped due to soaring inflation and the cost-of-living crisis. While this intervention was necessary to protect tenants, it left many organisations grappling with difficult choices around how to balance investment with ambitions for new development.

Although actual rents were capped, formula rents were permitted to increase by CPI plus 1%. This resulted in a widening gap between actual and formula rents for general needs properties. This divergence has real implications for long-term financial planning, compliance, and portfolio performance.

The Next Big Shift: Rent Convergence

The government has recognised that the level of investment in new and existing homes cannot be achieved without rent convergence. As part of the recent Spending Review, ministers confirmed their intention to introduce a convergence mechanism.  The government has opted for a phased approach, allowing RPs to increase weekly rents that are currently below formula rent by up to an additional £1 above CPI + 1% from 1^st April 2027, and by up to an additional £2 above CPI + 1% from 1^st April 2028, until the formula rent level is reached. RPs therefore have time to update their rent-setting models before the convergence mechanism comes into effect.

The Sector Overview

Rent portfolios are inherently complex, with differences in tenancy types, exceptions, rent caps, and historic adjustments. When this is coupled with reliance on spreadsheets, even a single formula error can easily cascade into incorrect rent setting. And while many RPs depend on housing management systems to calculate rent increases, these systems are not immune to errors either due to misconfigurations or legacy data issues which can lead to incorrect rent outcomes.

With the rise in mergers across the sector, organisations often inherit multiple policy frameworks, legacy systems and rent setting approaches, which increases the potential for inconsistencies and errors.

If the formula rents and actual rents gap is not tracked accurately, RPs risk compliance challenges, underestimating long-term rental income and misjudging future investment capacity. Without rent convergence, rents can only be moved to target levels at relet. Failure to move on relets mean extended periods of under-recovered rent and lost income that is difficult to recover later.

With the sector under increasing regulatory and public scrutiny, RPs cannot afford to carry unaddressed errors. We regularly identify historic overcharges caused by incorrect application of annual rental uplifts, often requiring repayment, and inconsistent use of rent caps. Within affordable rent portfolios, we see misapplication of internal rent policies and in shared ownership properties we see rent increases that do not align with the requirements set out in the leases.

Service charges continue to be one of the most frequent sources of tenant complaints, misallocations of costs, compliance breaches and refund liabilities.

How Altair can help you

We support RPs and Local Authorities with rent and service charge reviews, taking a data-led approach. Our work typically includes a full assessment of rent-setting models and comparing the outputs with those generated from our model, which has been developed and updated throughout the lifetime of the Government’s formula / target rents regime. It is a fully validated model widely used across the RP sector, providing a reliable foundation for accurate rent setting. Our model allows us to identify overcharges and carry out complex refund calculations. We also support organisations with service charges, reviewing the end‑to‑end processes for setting charges and providing clear advice on budgeting to ensure all costs are accurately captured, allocated, and apportioned across different schemes.

Our reviews provide Boards with assurance that rents and service charges are being set accurately, consistently, and in full compliance with regulatory requirements.

Stability is welcome, but RPs need to have an eye on the future. Rent settlements may provide certainty, but as recent history shows, external pressures and policy changes can reshape the landscape overnight. Providers who adapt will be best placed to protect their financial resilience and deliver on their mission.

 

If this is something that we can assist you with, please get in touch with:

Jim Lashmar – jim.lashmar@altairltd.co.uk 07968 616550

Mihir Shah – mihir.shah@altairltd.co.uk 07799 641384