Copy article

Impact of lower energy price cap on affordability

ended 25. May 2023

Ofgem is lowering its energy price cap from the current £3,280 per year to £2,074 for the average household in England, Wales and Scotland, effective from July 1, it has just been announced. Ofgem said the £1,206 reduction to the cap reflected recent falls in wholesale energy prices. The lower cap will replace the Government’s Energy Price Guarantee (EPG), which currently limits the typical household energy bill to around £2,500. It means the average household will see their annual bill drop by £426. Few Qs (all related):

  • Will this support borrowers, e.g. by improving affordability?
  • Are lenders likely to take this into account in their affordability assessments?
  • Could it impact the property market and further support prices?

Any thoughts on what this could mean for the mortgage and property markets, send them across ASAP as this story is BREAKING.

6 responses from the Newspage community

Copy all

Copy

Editor
Samuel Mather-Holgate
Independent Financial Adviser at Mather and Murray Financial
The impact or lower energy prices is the driving force of lowering inflation around the world. The raw costs have been falling for months and they finally find their way into consumers' bills. This will mean the ‘trickle-down’ effect of inflation on everything else, like food prices currently, will also subside over time. The central banks should see this as an important sign to pivot on rate policy. Of course, this will affect affordability for mortgage loans and lenders will adapt over the next couple of months. This could well be a sign things will return to normal but it’s only the start of the beginning.
Copy

Editor
Ross Lacey
Director & Independent Financial Adviser at Fairview Financial Management
This should be factored into lenders' affordability models, but with other household costs still increasing, we don't see the reduction in the energy price cap making a signification difference to affordability on its own.
Copy

Editor
Rohit Kohli
Director at The Mortgage Stop
This morning's news by Ofgem to lower the energy price cap is undoubtedly welcome news. This reduction should bring some relief to homeowners, particularly those on lower incomes who spend a higher proportion of their disposable income on essentials like gas and electricity​. In terms of mortgage affordability, energy prices can directly impact homeowners’ disposable income, thus affecting their ability to pay their mortgage which should take some pressure off some people​. This shift might not result in an immediate change in lending behaviour, but it's something to watch. However, the short-term impact of this reduction on property prices is likely to be minimal. Overall, this move is another positive signal amidst other economic news. While it might not significantly impact mortgage affordability or property prices in the short term, it could ease inflationary pressures over the medium to long term as these reduced energy prices feed into areas such as food production and industry.
Copy

Editor
Justin Moy
Managing Director at EHF Mortgages
Any reduction in household costs is very welcome but in pure mortgage affordability terms, once this saving does trickle down to the consumer, the effect on what you can borrow will only slightly improve. This on its own will do nothing to offset the extra cost of high mortgage rates. A £40pm reduction in bills could be worth around £2000 extra mortgage borrowing capacity if the lenders bother to pass any savings on.
Copy

Jonathan Burridge
Founding Adviser at We Are Money
Let us remember that prices shoot up, like a rocket, and then fall back down, like a feather. I doubt that we will see energy companies rush to reduce their tariffs, we will see reductions, but, they will be slow and we are unlikely to return to the levels we saw pre-pandemic.
Copy

Graham Cox
Director at Bridging Hub
Lower energy prices will provide welcome relief to household budgets across the country. But the impact on mortgage affordability will be negligible. Food prices are still soaring and economists are now predicting the Bank of England base rate could rise to 5.5% by November. So if anything, affordability is likely to tighten further.