Rent Setting Policy - Rent policy

The Council will set rents using a fair and transparent approach set out in this policy and in accordance with the Government’s Rent Standard and Rent Policy Statement.

Rent setting will support a financially viable HRA, which can meet future spending obligations, including treasury management requirements and capital investment needs within the stock.

The Council follows Government guidance when setting formula rents for it’s properties – GOV.UK. Since 2001, the rent charged for the majority of Woking Borough Council’s properties are a Social Rent, based on a formula set by the Government. The method for calculating the formula rent under the Government’s Rent Standard is set out on the Policy Statement on Rents for Social Housing – GOV.UK. 

Formula Rent

The basic weekly formula rent is equal to:

70% of the national average rent
Multiplied by relative county earnings
Multiplied by the bedroom weight
Plus
30% of the national average rent multiplied by the relative property value

Relative Property Value refers to an individual properties value, divided by the national (England) average property value, as at January 1999 values.

The Council is responsible for setting the 1999 valuations for its properties. The property valuation is usually carried out via a desktop exercise by the Council’s Property Services Team and derived from the beacon (indicative rent) values obtained. Where a suitable beacon valuation is not available, a new external valuation process will be carried out.

Exceptions will apply where the Council has refined the accuracy of the valuation, or where it has carried out substantial major works which have materially affected the property value. Any revaluation will be calculated at January 1999 values.

Social and Affordable rents can increase annually, subject to Full Council approval, by a maximum of CPI + 1% in line with the Government’s five year rent settlement for the period 2020/21 to 2025/26. The Government will set national rent policy for future years.

Rents will increase annually, generally at the beginning of April. In line with its Tenancy Agreement, the Council will give tenants four weeks written notice of any change in the level of rent and service charges which will normally be payable from the first Monday in April.

Rent caps apply as a maximum ceiling on formula rent, based on the number of bedrooms. If the social rent would be higher than the rent cap for the particular size of property, the rent cap will be used instead.

If an existing property is extended to provide an additional bedroom, then the rent will be revised to reflect the increased property valuation and size, using the Government’s Formula rent calculation. Any increase in rent will be chargeable as soon as is reasonable and practical following completion of work.

Rents will be checked at each property relet to ensure property records are accurate and rent set correctly. Where rents are set below formula rent, the rent will be increased on relet to the formula rent.

Service charges are separate to rent, and examples are grounds maintenance and block lighting for communal areas. The council has already unpooled service charges, so tenants pay a contribution to the actual costs for their home/block rather than all costs for the whole borough being pooled and divided between all tenants.

Rent Flexibility

Government allows some flexibility to set rents up to 5% above formula rent for general needs properties and up 10% for sheltered/supported housing (including extra care) if there is clear rationale for doing so, including taking into account local circumstances and affordability, and following tenant consultation. This is known as “Rent Flexibility”. Where there is intent to let a property using Rent Flexibility, this should be set out in the Rent Policy.

Historically, the Council has made little use of “Rent Flexibility”. However, the 30-year HRA Business Plan highlights the significant financial challenge facing the Council in meeting its housing obligations, complying with regulatory standards and ensuring its homes are safe and well-maintained.

In light of this, the Council intends to apply “rent flexibility” to all relets of its existing HRA homes when they become vacant. The aim is to introduce a 5% uplift above formula rents to both general needs and sheltered housing relets. The Council does not intend to uplift sheltered/supported housing rents by a higher percentage (i.e. 10%) to avoid deterring tenants from downsizing from larger family homes where applicable. The Council will normally apply maximum “rent flexibility” for new build or newly acquired HRA homes to ensure they are viable.

Affordable Rents

Affordable Rents are set at a level which is no more than 80% of the gross market rent valuation for the accommodation, including service charges. This is based on a market valuation obtained in accordance with a method recognised by the Royal Institute of Chartered Surveyors (RICS) or the Local Housing Allowance rate for the Broad Rental Market Arears in which the property is situated.

Affordable Rent properties are accommodation which Homes England or the Government have agreed can be let at an Affordable Rent. They are exempt from Formula Rent requirements set out in the previous sections of this policy.

Any “personal” service charges applicable can be made in addition to any Affordable Rent. These include costs relating to heating, hot water and power provided to an individual dwelling for the residents’ personal use only.

The policy applies to both Government grant funded Affordable Rent homes and homes prescribed as Affordable Rent in a Section 106 agreement in line with the Rent Standard and Capital Funding Guidance published by Homes England. In addition, any local authority intending to charge an Affordable Rent to fund new supply without any other financial support from central Government can seek permission via a letter to Homes England.

Woking Borough Council will normally only use Affordable Rent for any Council new build schemes and/or acquisitions. It will not be charged on re-lets of existing stock. The Council will charge Affordable Rent at levels no higher than the relevant Local Housing Allowance at the time.

To set the initial rent for a new Affordable Rent tenancy, a RICS “red book” valuation will be obtained to establish the gross market rent. Rents will then be calculated at up to 80% of the gross market rent valuation as outlined above.

The majority of Affordable Rents will be reviewed annually in April of each year. A very small number of Affordable Rents have in-year review dates. Rent increases will be set in accordance with the Rent Standard applicable at the time (currently CPI +1%, based on the previous September’s published CPI figure).

Affordable Rent homes that become available for re-letting will require a recent updated RICS gross market rent valuation. Recent for the Council is defined as within 3 months. All valuations obtained will be saved for future rent audit purposes.

Shared Ownership

The Rent Standard does not apply to shared ownership rents, which are governed by the terms of the individual lease agreements, with the rent element usually set as a percentage of the unsold equity.

Approvals

The annual rent increase is considered as part of the Council’s budget setting process and is approved by Full Council.

The Strategic Director – Communities (or a nominated officer) will have authority to agree any specific rents for individual properties (for example, the percentage of market rent value for new Affordable Rented homes).

The Strategic Director – Communities (or a nominated officer) will agree all formula Rents that have to be calculated or changed during the financial year outside the annual budget-setting timetable in accordance with this policy.