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Increased energy price cap will ‘dramatically hit’ housing market

The increased energy price cap could hit first-time buyers and the wider property market, new research suggests.

It comes as households are also dealing with the rising cost of living and the announcement last week that the energy bills price cap will rise from £1,971 to £3,549 in October.

Analysis by mortgage software company Twenty7Tec found annual energy costs will now make up the equivalent of 92.6% of a typical first-time buyer’s salary and more than 15 week’s of home loan repayments.


Its research assumed a couple where one earns £30,000 and the other £26,683, this equates to take-home pay of £3,833.10.

James Tucker, founder of Twenty7Tec, said: “The energy cap rise will eat into first time buyers’ attempts to save for their housebuying deposits, and it will hit those who have already purchased houses.

“Today, an average buyer will be purchasing a home worth £283,154, with a deposit of 23.75%. 

“They’ll be going for a 28-year mortgage and, at the best rate available for them in the market, will be paying £1,004.03 per month for a repayment mortgage.

“The new energy cap increase is going to hit first time buyer households to the tune of £2,110 per year compared with this time last year – equivalent to two whole months’ mortgage payments.”

He added that a working housing market needs functioning first-time buyers.

Tucker said: “Together with the active buy-to-let market, it allows the rest of the property chain to keep moving smoothly. The energy price cap just announced will dramatically affect those looking to take their first step on the property ladder.”

Meanwhile, mortgage borrowing is becoming more expensive as buyers rush to secure deals before the cost of living crisis bites further.

Bank of England figures for July show the ‘effective’ interest rate paid on newly drawn mortgages increased by 18 basis points to 2.33% and is the highest since June 2016.

The rate on the outstanding stock of mortgages ticked up 1 basis point, to 2.12%.

Approvals for house purchases increased slightly to 63,800 in July, from 63,200 in June, which is below the 12-month pre-pandemic average up to February 2020 of 66,800.

Despite the data lagging the 12-month average, Lawrence Bowles, director of research at Savills, said there have been 471,665 mortgage approvals so far in 2022, which is more than in any year between 2017 and 2020.

He said: “The stamp duty holiday introduced at the end of the first Covid-19 lockdown kickstarted a surge in transaction activity, with mortgage approvals peaking at 107,458 in November 2020. 

“However, activity remained strong throughout the whole of 2021 and into 2022, even after the Chancellor restricted the holiday to homes worth less than £250,000 last July.

“It may seem odd that mortgage approvals have remained so strong in the face of rapidly rising interest rates. 

“But with rates expected to continue to increase over the next couple of months, many buyers are pulling the trigger now to lock in today’s rate rather than paying even more later. 

“We do expect to see activity slow as winter creeps in, and higher interest rates and rocketing energy bills put greater pressure on household finances.”

He added that analysis of price differentials between high and low loan-to-value mortgages reveals that lending is only looking slightly more expensive than normal for highly leveraged buyers, while costs have risen far more dramatically for those with larger deposits. 

He said: “Back in July 2021, there was a 2.37% rate difference between a 60% loan-to-value mortgage and a loan at 95%, that premium had shrunk to just 0.53% in July this year.”

Hina Bhudia, partner at Knight Frank Finance, said the Bank of England data reveals clear signs that rising rates, economic headwinds and stubbornly low stock levels are weighing on activity.

Bhudia said: “Lenders' rapid repricing of products that characterised spring and summer appears to have slowed a little, giving borrowers a little more time to consider their options, though with more hikes around the corner that could be a temporary lull.

"The market is rife with nerves. We're getting large numbers of calls from borrowers with mortgages soon up for renewal that are worried about their mortgage payments. 

“These are often people that locked in two-year fixes of between 1.2% and 1.8% a couple of years ago and are now facing fixed rates of anywhere between 3.2% and 3.5%. That's a huge jump for most people and will be equivalent to hundreds of pounds a month in extra costs on average loan sizes."

  • Charlie Lamdin

    Time for agents to move very fast and rethink their public story of what the market is doing.


    Yes because that will really help people who cannot afford the gas bill

  • Charlie Lamdin

    Janet, I don’t think it’s an agents job to help people with energy bills is it?


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