In recent years, energy bills have been unpredictable, with rises in both households and businesses. With electricity and gas prices hitting record highs, the UK government has introduced several schemes to help businesses and households manage the rising prices.
In this blog, we’ll look into the reason why energy prices have been rising, how they can affect mortgages, the different schemes that are available, and what they can mean for you and your finances.
Why Are Energy Prices Rising?
From September 2021 to September 2022, the UK saw some of the sharpest energy price increases on record.
The key driver has been the war in Ukraine, which has disrupted global gas supply and driven prices to record highs.
Since electricity prices are closely tied to gas, they have followed the same upward trend.
Here are the price hikes from this timeframe:
- Gas prices rose by 96%
- Electricity prices rose by 54%
How do energy prices affect mortgages?
The recent surge in energy costs is one of the major drivers of inflation in the UK. With inflation being high, the Bank of England raised interest rates that directly impact your mortgage rate for your house and mortgage affordability.
With higher energy bills comes less disposable income, and with less disposable income, mortgage lenders can calculate your affordability and reduce the amount you can borrow.
Government schemes to help with rising costs:
Energy Bill Relief Scheme:
In late 2022, the Government announced the Energy Bill Relief Scheme (EBRS), which helped businesses with discounts on their energy bills.
Energy Price Guarantee:
Alternatively, for households, the Government announced the Energy Price Guarantee that saw a cap on bills up to an average of £2,500. This would have saved an average of £1,000 a year on energy bills, and was automatically placed on all households for two years from the 1st of October 2022.
Ofgen Price Cap Increase:
Early in 2022, the regulator, Ofgem, announced a big increase to the price cap, which we saw around a 54% increase from April 2022 and a further 80% in October 2022.
These rapid and increased rises needed the Government intervention to help shield households from the full impact of the energy price rises.
What Homeowners and Buyers Should Do
With the combination of rising living costs and higher mortgage rates, it’s more important than ever to plan:
- Review your mortgage deal – If your fixed rate is ending soon, speak to a broker early to secure a new deal before further rate rises.
- Budget carefully – Factor in higher energy and living costs when considering how much you can afford on a mortgage.
- Seek professional advice – At KS Mortgages, we help clients navigate affordability challenges, compare mortgage options, and make informed decisions in an uncertain market.
At Key Solutions, we know that rising energy costs can place extra strain on household budgets, making mortgage planning and affordability even more important. Whether you’re remortgaging, buying your first home, or looking for ways to manage costs, our team is here to guide you.
Contact us today!
