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 1st April 2027, and by up to an additional £2 above CPI + 1% from 1st 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
APRIL 2026 | ISSUE #2
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