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How will energy price rises affect the housing market?

Christina Hoghton
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Christina Hoghton

Some people could be forced to sell up and downsize, according to mortgage experts

The news that the energy price cap increase will mean bills of £3,549 from 1 October for typical users has inevitably worried households across the country.

But will the sharply rising energy costs impact the housing and mortgage markets?

And, if so, how?

A selection of mortgage brokers have published their thoughts on how soaring energy bills will impact borrowers and homeowners.

Here’s what they said:

Reduced affordability

When lenders work out what you can borrow, they look at your income and your outgoings, while others consider typical costs of living, or a mix of both. These ‘typical costs’ have already changed this year and will change further, which will have an impact on lenders’ affordablity models and what they will therefore be willing to lend.

Scott Taylor-Barr, financial adviser at Carl Summers Financial Services, explained: “Some lenders use data from the Office for National Statistics to drive the outgoings in their affordability models; these lenders will likely see a reduction in the maximum loans that any given income can generate as the increased energy costs filter through.

“Other lenders ask the broker to enter this data from the figures on the client’s bank statements – this means that those who are especially frugal with their energy may be less disadvantaged in terms of the size of mortgage they can generate with this type of lender, than one that uses ONS data. Brokers will have a good idea of which lenders use which type of model, as well as having software that can compare multiple lenders’ affordability models at once, allowing them to guide their clients to the best outcomes for their individual situations.”

Imran Hussain, director at Harmony Financial Services, agreed: “I, along with everyone else, will be surprised if the latest price cap will not impact mortgage affordability for the average working person and families. Lenders are not daft and will want to ensure they lend responsibly. As a result, they will either be making adjustments right away or imminently.”

Impact on demand

If it becomes harder for borrowers to get the size of mortgage they need, combined with the fact that mortgage rates have risen, it follows that demand to buy property will reduce, and many experts agree this will happen.

Robert Payne, director at Langley House Mortgages, said: “There certainly is a relationship between tougher affordability and demand for property and all of the estate agents we work with say they have seen a reduction in activity, but this is in comparison to one of the hottest markets we have ever seen.

“The concern will be what happens from here. Will rates continue to rocket, will existing borrowers be unable to afford their outgoings and will prospective buyers now hold out until the market settles back down?”

Lewis Shaw, founder of Shaw Financial Services, agreed: “The knock-on effect will ripple through the housing market, where price rises will be arrested and possibly dip. I think we’ll also start to see a shift toward buyers putting more weight on a home’s energy efficiency than ever before.”

Forced to sell up

In the most extreme cases, some buyers could have to sell their homes if they can’t afford higher mortgage costs combined with higher energy bills.

Rhys Schofield, managing director at Peak Money, said: “The reality is that a lot of people simply won’t be able to swallow increased energy costs on top of higher rates come remortgage time, which will force many to sell up and downsize.

“It’s imperative that customers coming to the end of a fixed rate start planning six months out in order to secure a new rate or work out how they are going to cut their cloth accordingly.”