What Impact Will Energy Price Rises Have on the Housing Market?

Prime Minister Liz Truss has announced a £150bn support scheme to tackle the rising cost of energy that will see annual fuel bills for a typical household capped at £2,500.

This is lower than the £3,549 per year many homeowners feared following Ofgem’s previous announcement of an increased energy price cap from 1st October. But it’s still over £500 a year more than the current cap of £1971 – and almost double the maximum of £1277 per year of this time last year.

Rising energy bills have been a significant factor in the ongoing cost-of living crisis. And they’re just one reason why families are concerned about how to manage bills and ensure they keep up to date with mortgage or rent payments.

Why are energy bills going up?

One major factor is the war in Ukraine which has seen the UK, EU and US place restrictions on importing oil and gas from Russia.

Prior to the invasion on 24th February, Russia accounted for 43% of natural gas imported to the EU. In 2021, Russia imports totalled 4%, 9% of oil and 27% of coal used in the UK. In June 2022, the UK reported no imports of gas, oil or coal from Russia.

This limited supply has come amidst an increase in demand as lockdowns have been lifted and the world has gone somewhat back to normal. And, of course, we’re now heading into winter when demand typically spikes anyway.

So, energy companies are having to pay more to buy gas and electricity. And the additional costs are being passed on to individual and corporate customers. This means less money in consumers’ pockets, but higher prices being charged for goods and services as businesses also struggle with energy bills.

What to do if you’re struggling to pay your energy bills?

While the cost of energy bills can feel overwhelming, it’s important to remember there is help available and that you’re not the only one struggling.

The first thing to do is contact your energy supplier and explain the situation. They are legally obliged to help you arrange an affordable payment plan, and may be able to discuss ways you can reduce your household energy consumption. This might include tips such as:

• Turning down your thermostat
• Taking fewer/shorter showers
• Draft-proofing windows and doors
• Reducing use of non-essential appliances (ie tumble dryer)
• Not leaving appliances on standby

Other support is available too:

• Earlier this year, the government announced that all households will have £400 taken off their energy bill (low-income households, pensioners and people with disabilities may be eligible for up to £800)
• Pensioners will be given an additional £300 Cost of Living payment (people with disabilities will receive an extra £150)
• From 12th September, the British Gas Energy Trust will offer grants of up to £1500 to households facing fuel debt, irrespective of who their energy supplier is
• Check the Household Support Fund for your area by contacting your local authority
•  The Warm Home Discount Scheme is due to reopen in November 2022

Impact on the housing market

As you might expect, the belt-tightening that is an inevitable consequence of financial pressures has led to a slowing down of buyer demand.

Interest rates are arguably an even bigger factor in the downturn in demand. At the beginning of 2022, the average rate for borrowers taking out a new fixed-term mortgage over two years was 2%. This is now up to 4%, with further rate rises predicted.

Despite this, demand remains above the five-year average, and house prices are not expected to experience any sort of significant dip.

Recently, the UKs largest housebuilder, Barratt Developments, said the number of new homes reserved each week fell below last years’ equivalent figure in August and is now below pre-pandemic levels.

But it’s not all bad news. Despite all of the above, the experts say a housing market crash is a long way off. Indeed, the average price of a UK home rose to £294,260 in August, an increase of 0.4%.

And there are rumours that particular types of properties could become more desirable. For example, properties with EPC (energy performance certificate) rating of A-C are currently paying on average £1700 per year for fuel, while those rated F-G are paying around £3900.

Most UK properties fall into category D and can expect to pay an additional £1250 per year following the recent energy price rises.

Could EPC ratings become a factor in housing demand as we move into 2023 and beyond?

There are also signs that homeowners are moving towards longer term mortgages to help reduce their monthly outgoings. While this increases the overall cost of borrowing, it also offers some certainty and helps ease the financial burden in these trying times.