Rent and Service Charge Setting Policy

1.1 Scope

This policy outlines Gateshead Council's approach to the calculation and review of rents and service charges for council-owned homes in the Housing Revenue Account (HRA). The policy applies to:

• HRA rented residential accommodation
• service charges for HRA rented accommodation
• garage rent

The policy does not cover:

• rent and service charges for General Fund residential properties
• shops and commercial premises
• shared ownership accommodation
• ground rents and service charges for leasehold residential accommodation

1.2 Purpose

The purpose of the policy is to:

• ensure that the council adheres to current government legislation and regulation when setting and agreeing rents and service charges
• provide a clear, consistent and transparent framework for setting and reviewing the rent for all HRA properties
• support the delivery of the HRA Business Plan and enable investment in existing homes and new affordable housing
• enable ongoing and future investment in service chargeable items and ensure estate-based services are maintained, where a service charge is applicable 

2.1       

Gateshead Council's plans are driven by its overall vision of Making Gateshead a Place Where Everyone Thrives. This vision is incorporated in the council's and has five main pledges:

1. Put people and families at the heart of everything we do

2. Tackle inequality so people have a fair chance

3. Support our communities to support themselves and each other

4. Invest in our economy to provide sustainable opportunities for employment innovation and growth across the borough

5. Work together and fight for a better future for Gateshead

2.2         

Thriving means people and families in Gateshead having good homes, jobs and health and access to good support networks enabling them to flourish and succeed.

2.3       

The council's Housing Strategy 2019-2030 builds on its Thrive vision. It sets out how we will work in partnership with residents, partners and stakeholders to ensure residents have access to good-quality homes that are well managed and meet people's needs. The strategy has three key interlinked objectives:

• sustainable housing
• economic growth and sustainable communities
• improved health and wellbeing

2.4       

In addition to these objectives a key theme within the strategy is supporting the long-term sustainability of the council's housing stock and the Housing Revenue Account (HRA). A viable and sustainable HRA enables the council to deliver effective value-for-money services, invest in its properties and provide new social housing to rent.

3.1       

Since 2001, rents for properties let at 'social rent' (which are the majority of council housing properties) have been set based on a formula set by the government. This creates a 'formula rent' for each property, which is calculated based on several factors including property value, local income levels and property size. This approach aims to ensure that similar rents are charged for similar social rent properties.

3.2       

In 2011, the government introduced 'affordable rent' which permits rents to be set at up to 80% of market rent (including service charges). Landlords can only let new properties at affordable rent or convert social rent properties to affordable rent where certain conditions apply.

3.3    

From April 2016, the Welfare Reform and Work Act 2016 required social landlords to reduce their rents by 1% each year for four years (the 'social rent reduction').

3.4   

In October 2017, the government announced its intention to set a long-term rent deal for both local authority landlords and housing associations that permits annual rent increases on both social rent and affordable rent properties of up to Consumer Price Index (CPI) plus 1 percentage point (CPI+1%) from 2020, for a period of at least five years. It did not override landlords' statutory obligation to complete the four-year social rent reduction as required by the Welfare Reform and Work Act 2016.

3.5    

The new policy from April 2020 recognised the need for a stable financial environment to support the delivery of new homes and to enable registered providers to plan ahead. The increases from 1 April 2020 of CPI+1% is a maximum amount and councils could apply a lower increase, freeze or lower rents if they wished to do so.

3.6    

This policy came into effect from 1 April 2020. Where a landlord had not completed the social rent reduction by 31 March 2020 (because its rent year begins after 1 April), it was required to complete the reduction before applying the policy.

3.7   

To control this new settlement, rather than legislate, the government required the Regulator of Social Housing to prepare a new Rent Standard to apply from 2020 to all registered providers of social housing, including councils.

3.8    

From 1 April 2020, registered providers, including councils, must comply in full with all the requirements and expectations set out in the Rent Standard. They must also comply with the Rent Policy Statement on Rents for Social Housing 2019 on the setting, increase and decrease of rents and service charges.

3.9     

In 2023/24, due to high levels of inflation, the CPI+1% limit on annual rent increases was replaced by a 7% maximum increase. This meant that, in that year, registered providers could increase rents by up to 7%. This restriction applied to both social and affordable rent homes, except for supported housing as defined in the government policy statement.  Gateshead Council applied it to all council-owned homes in the HRA.

3.10   

The CPI+1% limit on annual rent increases does not require registered providers to reduce rents should CPI fall below minus 1%.

3.11  

In January 2024 the regulator confirmed the limit on annual rent increases for 2024/25 to be CPI+1% and in April 2024 it was confirmed this formula will continue to apply to rent increases in 2025/26.

3.12  

In the Autumn Budget on 30 October 2024 the government announced it is consulting on a new long-term social housing rent settlement from 1 April 2026 of CPI+1% for at least 5 years to offer certainty for social housing providers. The consultation will run until 23 December 2024.

4.1       

The council sets rents for residential accommodation in the HRA in accordance with the Policy Statement on Rents for Social Housing issued by the government and the Rent Standard issued by the Regulator of Social Housing (RSH).

4.2     

All existing social rented properties that become vacant and available for re-let will be let at formula rent (see section 5 of the policy).

4.3       

Affordable rents will be charged at 80% of the market rental value for the property. This includes all service charges. The council will keep rent levels under review to ensure they remain affordable for people living in the borough.

4.4       

Rent and service charge increases (where applicable) will apply from the first Monday in April each year. Tenants will be given at least 28 days' notice before a rent or service charge increase applies.

4.5    

The council reserves the right to make changes to service charges during the financial year where there are substantial cost variations subject to the council's constitutional decision making. 

4.6       

Rent and service charges will be calculated over 52 weeks and collected over 50 weeks with two rent-free weeks. Where there are 53 Mondays in the financial year, the rent will then be collected over 51 weeks. Customers will be advised at the start of each financial year which two weeks will be rent free.

4.7          

The council will enter into agreements with the Secretary of State and Homes England to build new homes for Affordable rent. The council reserves the right to charge a formula rent plus rent flexibility in line with the Rent Standard together with applicable service charges where it is more economically viable to do so.

4.8          

The council does not charge higher rents for social tenants with a household income of above £60,000 despite the government rent policy allowing this (see section 6.12). No cost-efficient or effective system currently exists for councils to ascertain the true household income of existing tenants. However, for prospective new tenants, Gateshead Council's Allocations Policy requires proof of income and has a maximum income threshold of £50,000.

5.1

The council may set the initial rent on properties to be let at social rent at a level no higher than formula rent, subject to flexibility levels (see below).

5.2

Since 2001, rents for properties let at social rent have been based on a formula set by the government. The formula creates a 'formula rent' for each property that is exclusive of any service charges, which considers the location, relative value of the property at January 1999, relative local income levels, and the size of the property. A main aim of this formula-based approach is to ensure that similar rents are charged for similar properties.

5.3

The formula is set out in both the Government Rent Policy Statement and the Regulator of Social Housing (RSH) Rent Standard and is shown below (fig 1). As most of the formula is specified by government (fig 2), the factor which determines the rent is the value of the property (1999 prices).

Fig 1

Weekly formula rent (52 weeks) at April 2000 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 relative property value

National average rent means the national England average rent in April 2000.

Relative county earnings means the average manual earnings for the county in which the property is located divided by national average manual earnings, both at 1999 levels.

Relative property value means an individual property's value divided by the national (England) average property value, as at January 1999 prices.

Fig 2

The national average rent that must be used, for April 2000, is £54.62.

The national average property value to be used, for January 1999, is £49,750.

County earnings data to be used for Gateshead is £307.90 per week.

Bedroom weights which must be used (specifically, applied to the earnings term in the formula) are:

5.4

Once a formula rent for 2000-01 has been calculated, it must then be adjusted each year based on inflation as defined in guidance.

5.5 Rent caps      

Formula rent is also subject to a rent cap based on the number of bedrooms in a property. From 2020-21 onwards, rent caps increased by CPI+1.5% annually. Where the formula rent would be higher than the rent cap, the rent cap will be used instead. Rent caps are set by government.

5.6 Rent flexibility

Government policy provides the flexibility for the council to set rents at up to 5% above formula rent for general needs properties, and 10% for supported housing (as defined in guidance). Gateshead Council reserves the right to apply this flexibility but must provide a clear rationale for doing so which considers local circumstances and affordability.

5.7 Changes to rents

From 1 April 2020, the council may not increase rents by more than CPI+1% (CPI as at September of the previous year). For rent periods that began in the 12 months from 1 April 2023 to 31 March 2024, this limit was subject to a 7% maximum increase.

5.8    

The council can apply a lower increase, freeze or reduce rents.

5.9

The council must adhere to these limits on rent increases even if a tenant's rent is below formula rent, or if they have previously applied a lower or no annual increase. Where this is the case, the provider may only move the rent up to formula rent when the property is re-let following a vacancy.

5.10 Conversion of social rent properties

The council cannot convert a property charged at social rent to the following:

(a) affordable rent, except where this has been agreed by Homes England or the Secretary of State

(b) market rent

or

(c) intermediate rent

5.11 Property valuations

Calculating formula rent requires a consistent approach to property valuations. These will be done in accordance with a method recognised by the Royal Institution of Chartered Surveyors (RICS) and will be made at January 1999 prices.

5.12

Gateshead Council reserves the right to re-value properties where we have carried out 'major works' that have materially affected the value of the property. This does not include normal stock management activity such as repairs, maintenance or updating of properties, but will include structural alterations, such as adding an extra room or an extension.

6.1    

Affordable-rent properties are accommodation which Homes England or the Secretary of State has agreed can be let at an affordable rent.

6.2    

Where an affordable rent is being charged, the maximum gross rent for a new tenant, inclusive of service charges, under a new tenancy is 80% of the gross market rental value for similar market rent properties in the locality.

6.3    

'Gross market rent' means the rent (including any applicable service charges) for which the accommodation might reasonably be expected to be let in the private rented sector. Property size, location type and service provision must be considered when determining what gross market rent a property might achieve if let in the private rented sector.

6.4    

Affordable rents are not subject to the Local Housing Allowance (LHA). However, the council will consider the local market context, including the relevant Local Housing Allowance, when setting affordable rents.

6.5

An affordable rent should be no lower than the potential formula rent for the property. In cases where an affordable rent would be lower than the formula rent, the formula rent is the minimum amount of rent that should be charged. To ensure that the rent is not set lower than the formula rent, a formula rent should be calculated for affordable properties for comparative purposes.

6.6 Changes to rents

The council must not increase rents for properties let on affordable rent terms by more than CPI+1% (CPI as at September of the previous year) in accordance with the Rent Standard. For rent periods that began in the 12 months from 1 April 2023 to 31 March 2024, this limit was subject to a 7% maximum amount.

6.7    

The council can apply a lower increase, freeze or reduce rents.

6.8 Property valuations

A valuation of market rent must be made in accordance with a Royal Institution of Chartered Surveyors (RICS) recognised method. Property size, location, outdoor space and any services available must be considered when determining market rent.

6.9 Re-letting properties

When a tenancy of affordable rent housing is let to a new tenant (or re-let to an existing tenant), the council must re-set the rent based on a new valuation, to ensure that the new rent is no more than 80% of the relevant market rent at the time of letting.

6.10  

If the accommodation is re-let to the same tenant because of a probationary tenancy coming to an end, the rent must not be re-set. In this case the rent may not increase by more than CPI+1%.

6.11 Conversion of affordable rent properties

Affordable rent properties must not be converted (including when they are re-let) to:

a) Market rent

b) Intermediate rent.

6.12 Rents for social tenants with high incomes

From April 2015, the government made it possible for social landlords to charge a full market rent where a social tenant household has an annual income of at least £60,000. Section 4.8 outlines Gateshead Council's approach to this.

7.1    

The Rent Standard does not apply to the following types of accommodation:

• shared ownership low-cost rental accommodation
• intermediate rent accommodation
• specialised supported housing
• relevant local authority accommodation
• student accommodation
• Private Finance Initiative social housing
• temporary social housing

• care homes

7.2  

Definitions of these types of accommodation can be found in the Rent Standard.

The following legislation and guidance documents are relevant to this policy:

• Housing Act 1985 Section 24 (opens new window)
• Landlord and Tenant Act 1985 (opens new window)
• Local Government and Housing Act 1989 (opens new window)
• Housing and Regeneration Act 2008 (a) Section 197 (opens new window)
• GOV.UK - Guidance on rents for social housing - Department for Communities and Local Government, May 2014 (opens new window)
• Rent Standard Guidance - Homes and Communities Agency, April 2015 (opens new window)
• Social Housing Rents (Exceptions and Miscellaneous Provisions) Regulations 2016 (opens new window)
• Welfare Reform and Work Act 2016 (opens new window)
• Direction on the Rent Standard 2019 (opens new window)
• The Direction on the Rent Standard 2023 (opens new window)
• Policy Statement on Rents for Social Housing issued by the Secretary of State on 26 February 2019 (updated December 2022) (opens new window)
• Rent Standard 2020 - Regulator of Social Housing, 1 April 2020 (opens new window)
• Social Housing (Regulation) Act 2023 (opens new window)

 

9.1        

Garage rents sit outside the formula used to calculate social and affordable rents. Garage rents are set and reviewed annually considering local market factors at that time including but not limited to demand.

10.1   

In addition to their rent, tenants may also pay service charges. Service charges pay for additional services which may not be provided to every tenant.

10.2    

The council has adopted the principle of recovering the actual cost of services provided. Tenants will only be charged for the services they receive. Tenants cannot opt out of any service provision or charge. Any offers of accommodation will clearly identify service charges attached to the property and the amounts involved.

10.3

Service charges are not covered by the same government guidelines as rent. However, the guidelines are that service charges should be set on a reasonable and transparent basis and should reflect the service provided.

10.4     

Where new or extended services are to be introduced or where it is proposed to significantly alter an existing level of service, the council will consult with those affected using established consultation methods.

10.5     

In calculating service charges, the council will:

• set reasonable and transparent charges which reflect the actual cost of providing the service
• base charges on the actual expenditure for the previous year plus estimated inflation for the relevant type of charge
• identify service charges separately from the rent
• ensure savings and efficiencies resulting from a reduction in the costs of services are passed onto tenants
• make no allowance for potential void properties to ensure tenants are not penalised for low occupancy

11.1

Any personal information provided to the council regarding tenants' personal or financial circumstances will be dealt with in accordance with council policies. All data held in respect of tenants will be recorded and processed in accordance with current data protection legislation and the council's Retention Policy.

12.1    

Rent collection is a vital element of measuring the financial viability of the HRA Business Plan. Performance of rental income collection is monitored quarterly.

13.1    

The council actively encourages all customer feedback about its services and is committed to:

• dealing with complaints and comments quickly and effectively
• using complaints, comments and compliments to review and improve services

13.2     

Complaints about any aspect of this policy will be dealt with through the council's Corporate Complaints process.

• Housing Revenue Account Business Plan 2024-2054
• Tenancy Strategy 2022-2027
• Tenancy Management Policy
• Tenancy Agreement
• HRA Asset Management Strategy 2022-2027
• Housing Strategy 2019-2030 (PDF, 815 KB)(opens new window)
• Homelessness and Rough Sleeping Strategy 2022-2027
• Allocations Policy

15.1    

An Integrated Impact Assessment (IIA) has been undertaken on this policy. This helps us to consider the actual or potential impact of council strategies, policies, services or budget proposals on people and their surroundings. It also ensures the decision-making process is transparent and provides evidence of how a proposal will contribute to the delivery of Making Gateshead a Place Where Everyone Thrives. A copy of this can be found at Appendix 1.

16.1     

This policy has been developed in conjunction with operational, strategic and financial officers of the council. It was considered by Gateshead Council's Equality, Diversity and Inclusion group on 16 September 2024 and the Strategic Housing Board on 24 October 2024.

17.1     

This policy will be reviewed on an annual basis or amended as necessary to comply with any legislative or regulatory changes relating to rent setting or welfare reforms.

Affordable rent

Accommodation provided under an agreement with Homes England or the Secretary of State. The rent for affordable rent housing (inclusive of service charges) must not exceed 80% of gross market rent. See also section 6 of the policy document.

Average manual earnings

The figures specified in the government policy statement on rents for social housing (opens new window) which are taken from the New Earning Survey (produced by the Office for National Statistics). These figures are based on the average gross weekly earnings of full-time manual workers over the 1997 to 1999 period, uprated to 1999 prices.

Consumer Price Index (CPI)

The CPI measures the change in prices UK consumers pay for everyday goods and services, like groceries, fuel and clothing. It compares the prices of goods and services now with how much they cost a year ago. The Office for National Statistics (ONS) calculates and releases an updated figure each month.

Formula rent

Since 2001, rents for properties let at Social Rent have been based on a formula set by the government. The formula is set out in both the Government Rent Policy Statement (opens new window) and the Regulator of Social Housing (RSH) Rent Standard (opens new window).

The formula creates a 'Formula Rent' for each property (not including service charges), which is based on the location, relative value of the property at January 1999, relative local income levels, and the size of the property. A main aim of this formula-based approach is to ensure that similar rents are charged for similar properties (see also section 5.3).

General fund

This is the council's main revenue account which includes day-to-day income and expenditure that can be used for the provision of services.

Homes England

The government's housing and regeneration agency.

Housing Revenue Account (HRA)

The Housing Revenue Account is a separate statutory account to record expenditure and income on running a council's own housing stock and closely related services or facilities which are provided mainly for the benefit of the council tenants.

Integrated Impact Assessment (IIA)

An Integrated Impact Assessment (IIA) is a process which helps the council to consider the actual or potential impacts of council strategies, policies, services or budget proposals on people and their surroundings. It is a key document in ensuring the decision-making process is transparent, any potential negative impacts are mitigated and opportunities to evidence how a proposal will contribute to the delivery of Making Gateshead a Place Where Everyone Thrives are captured.                   

Intermediate rent

Low-cost rental accommodation which satisfies either (a), (b) or (c) below:

(a) The accommodation:

i. was built or acquired by the private registered provider without public assistance;

ii. is provided on an assured shorthold tenancy (other than an assured shorthold tenancy that is expressed to be a probationary or starter tenancy) or licence, either:

• to a tenant who is not a person nominated by a local housing authority under section 159(2)(c) of the Housing Act 1996, or
• to a tenant nominated by a local housing authority under section 159(2)(c) where any conditions set by the local housing authority regarding the circumstances in which the registered provider may grant a tenancy of intermediate rent accommodation are satisfied in respect of that accommodation,

iii. has not previously been let on a social rent basis, and

iv. is not affordable rent housing.

(b) The accommodation is low-cost rental accommodation which was funded wholly or in part by public assistance under a programme identified by the Regulator as an intermediate rent accommodation enabling programme and any conditions under that programme regarding the circumstances in which the accommodation may be let as intermediate rent accommodation are satisfied.

(c) The accommodation is key worker housing.

Local Housing Allowance (LHA)

The Department for Work and Pensions (DWP) use Local Housing Allowance (LHA) (opens new window) rates to calculate Housing Benefit for tenants renting from private landlords. LHA rates relate to an area in which a claim is made - these areas are called Broad Rental Market Areas (BRMA). A BRMA is where a person could reasonably be expected to live taking into account access to certain facilities and services. The Valuation Office Agency (VOA) Rent Officers collect rental information from letting agents, landlords, tenants and other sources. LHA rates are based on private market rents being paid in the BRMA which can differ from advertised rents.

Gross market rent

Gross market rent means the rent (inclusive of any applicable service charges) for which the accommodation might reasonably be expected to be let in the private rented sector. Property size, location type and service provision must be considered when determining what gross market rent a property might achieve if let in the private rented sector.

Private Finance Initiative (PFI)

This is a long-term contract between a private party and a government one where the private sector designs, builds, finances and runs a public asset and related services. In a PFI contract the private party bears the risks associated with construction, maintenance and management responsibility. Examples of PFI can include new housing, schools and waste facilities.

Regulator of Social Housing (RSH):

The RSH ensures that social housing providers operate in an ethical, efficient way which directly benefits vulnerable individuals and families who need access to affordable housing options. The RSH sets standards and carries out robust regulation focusing on driving improvement in social landlords, (including councils) and ensuring that organisations are well-governed, financially viable and offer value for money. If standards are not being delivered and poor-quality housing and outcomes are identified, the RSH has powers to take appropriate action. Their powers were expanded from 1 April 2024 to include regulatory inspections of social landlords.

Relative county earnings

This means the average manual earnings for the county in which the property is located divided by national average manual earnings, both at 1999 levels. The policy statement on rents for social housing (opens new window) specifies the data to be used in the calculation of rents.

Relative property value

This means an individual property's value divided by the national (England) average property value, as at January 1999 prices. The policy statement on rents for social housing (opens new window) sets out the data to be used to calculate rents.

Relevant local authority accommodation

Accommodation is 'relevant local authority accommodation' if it is provided by a council and the Secretary of State has agreed that it would be inappropriate to apply the rent policy to the accommodation because this would cause the council unavoidable and serious financial difficulty.

Royal Institution of Chartered Surveyors (RICS)

This is a global professional body for those working in the built environment, construction, land, property and real estate. RICS works in the public interest to uphold standards and protect the natural and built environments ensuring they are sustainable and inclusive for everyone.

Service charges

Usually reflect additional services which may not be provided to every tenant, or which may relate to communal facilities rather than being particular to an individual home. Service charges are subject to separate legal requirements and are limited to covering the cost of providing the services.

Shared ownership

This allows a buyer to purchase a share of the home and to pay an affordable rent on the remaining part. The buyer has the option to increase their share during their time in the property via a process known as 'staircasing' and can staircase all the way to 100% ownership.