Guaranteed Rent vs Short-Term Lets: How the Renters' Rights Act Changes the Maths for London Landlords

A New Rent Increase Cap Is Coming, and London Landlords Need a Plan

From 1 May 2026, the Renters' Rights Act introduces a once-a-year cap on rent increases within a tenancy in England. For London landlords who have relied on periodic rent reviews to keep pace with inflation and rising market rates, this is a significant shift. The new rules mean you can no longer raise rent more than once every twelve months during a tenancy, and every increase will need to reflect market rates, not arbitrary figures.

With London rents rising sharply over the past few years (and inflation still stubbornly above the Bank of England's target), this restriction forces a genuine rethink. Many landlords are now asking: is a guaranteed rent scheme the safest route to predictable, inflation-proof income? Or does it actually make the problem worse?

Let's unpack the guaranteed rent model honestly, model the real numbers over two to three years, and explore whether there's a smarter strategy hiding in plain sight.

What Is a Guaranteed Rent Scheme and How Does It Work?

A guaranteed rent scheme is simple in concept. A company (usually a letting agent or property management firm) agrees to pay you a fixed monthly rent for a set period, typically one to five years. They then sublet the property, usually as a longer-term rental, and pocket the difference between what they pay you and what the tenant pays them.

For landlords, the appeal is obvious:

• No void periods. You receive rent whether the property is occupied or not.
• No tenant headaches. The management company handles everything.
• Predictable income. You know exactly what lands in your bank account each month.

Sounds good, right? It can be. But the devil, as always, is in the detail.

The Pros and Cons of Guaranteed Rent Under the New Rules

Why it looks attractive right now

With the once-a-year rent increase cap taking effect, guaranteed rent schemes offer something reassuring: certainty. You lock in a rate, you forget about it, and you avoid the new regulatory friction around rent reviews entirely. If you're a landlord who values simplicity and dislikes risk, this feels like the right move.

Where the model falls short

Here's the catch. Guaranteed rent companies aren't charities. They build their margin by offering you below market rate, sometimes 10% to 20% less than you'd achieve renting directly. And they lock you into that rate for the term of the agreement.

In a flat or falling market, that discount is the price of peace of mind. In a rising market, it becomes an escalating cost.

Modelling the Income Gap: 2026 to 2029

Let's look at a realistic London scenario. Say your two-bedroom flat in Zone 2 currently commands £2,200 per month on the open market.

| Year | Open Market Rent (5% annual growth) | Guaranteed Rent (fixed at 85% of 2026 rate) | Annual Gap | | - - - | - - - - - - - - - - - - - - - - - - - | - - - - - - - - - - - - - - - - - - - - - - - | - - - - - - | | 2026 | £2,200/month (£26,400/year) | £1,870/month (£22,440/year) | £3,960 | | 2027 | £2,310/month (£27,720/year) | £1,870/month (£22,440/year) | £5,280 | | 2028 | £2,426/month (£29,112/year) | £1,870/month (£22,440/year) | £6,672 |

Over three years, you'd forgo roughly £15,912 in potential income. And that assumes modest 5% annual growth, which is conservative for many London postcodes.

Yes, the once-a-year rent increase rule makes it slower to capture market gains with a traditional AST. But you can still raise rent annually in line with the market. A guaranteed rent scheme removes that option entirely for the duration of the contract.

What Pitfalls Should Landlords Watch For?

Before signing any guaranteed rent agreement, keep your eyes open:

• Contract exit clauses. Some schemes lock you in with punitive break fees. Read the small print carefully.
• Property condition. If the management company sublets to tenants who cause damage, who covers the repair costs? Clarify this upfront.
• Company reliability. Not all guaranteed rent providers are financially stable. If they go bust mid-contract, your income stream vanishes overnight.
• Tax implications. You're still liable for income tax on the guaranteed rent, but you may lose the ability to claim certain management expenses depending on how the agreement is structured.

Guaranteed rent is not a bad product. For the right landlord in the right situation, it makes sense. But for anyone with a well-located London property, it often means leaving serious money on the table.

There's a Third Option Most Landlords Overlook

Here's where the conversation gets interesting. The Renters' Rights Act rent increase cap applies to assured tenancies, meaning traditional long-term lets. It does not apply to short-term lets.

A professionally managed short-term let operates on flexible nightly or weekly pricing. There's no tenancy to restrict, no annual cap to worry about, and no locked-in rate that trails the market. Pricing adjusts dynamically with demand, seasonality, and local events.

For a London property, the numbers can be genuinely eye-opening. That same Zone 2 two-bedroom flat earning £2,200 per month on a long-term AST could realistically generate £3,500 to £5,000 per month as a well-managed short-term let, depending on location and occupancy rates.

This is not about choosing risk over safety. This is about choosing flexibility over rigidity, and higher income over a discounted guarantee.

Why London Landlords Are Turning to Airhosts

The reason many landlords shy away from short-term lets is the perceived hassle: guest communication, cleaning, pricing, key handovers, listing optimisation. It sounds like a second job, and for DIY hosts, it often is.

That's exactly the problem Airhosts was built to solve. As a London-based short-term let management company, Airhosts handles every aspect of your property's performance, from professional photography and listing creation to dynamic pricing, guest vetting, cleaning, maintenance, and 24/7 guest support. You stay completely hands-off while your property earns at its full potential.

Unlike a guaranteed rent scheme, Airhosts doesn't lock you into a below-market rate. Instead, your income rises and falls with real demand, and in London, demand for quality short-term accommodation remains consistently strong.

The Bottom Line for London Landlords in 2026

The Renters' Rights Act has changed the game. The once-a-year rent increase cap makes the long-term rental model less responsive, and guaranteed rent schemes, while comforting, lock you into returns that can fall thousands of pounds short of what your property is truly worth.

Professionally managed short-term lets sidestep the restriction entirely, offering higher yields, total flexibility, and genuinely passive income when you partner with the right management team.

If you own a property in London and you want to stop leaving money on the table, get in touch with Airhosts today. We'll show you exactly what your property could earn, with zero obligations and zero hassle. Your property is worth more than a guaranteed discount.