The energy price cap is due to kick in on 1st April – adding an extra £693 per year to the average UK household’s bill in 2022. With less than two weeks to go, the nation is preparing for the significant impact of rising energy costs due to the price cap increase approved by the government.
© Andrey Popov / Adobe Stock
Letting agencies, landlords and tenants are seeking advice on what this means for them and if any support is available. With the energy price cap due to increase by 54%, this means the average energy bill will be £1,971 from spring 2022.
This is likely to push many households over the threshold into fuel poverty. There are no signs things will get better in the immediate future, as the Russian invasion of Ukraine is pushing up wholesale gas prices even more.
Households on prepayment meters will suffer a larger increase of £708 per year, pushing their annual bill up to £2,017 a year, or £168 a month.
How will the price cap affect landlords?
There are signs the impending price increase is already impacting tenancies. Research shows a growing number of tenants are being asked for guarantors when it comes to renting a new property, as the affordability ratio is shifting. This is due to the cost of living rising, with a survey in January 2022 revealing 66% of respondents had experienced a cost of living increase already within the past month.
With 79% blaming higher gas and electricity bills, the latest increase in April could mean the difference between tenants being able to pay the rent or falling into arrears to avoid having their gas and electricity cut off.
Economists say it could be three years before the energy crisis eases. In the interim, the number of households falling into fuel poverty could rise to six million from the current four million. Letting agents and landlords are being asked by poverty support groups to take a long-term view to support tenants. However, it will be challenging for landlords to advise tenants when they will be suffering the same price increases themselves in energy bills and the general cost of living.
What help is available?
The energy watchdog Ofgem says the worst-hit will be the default tariff customers who haven’t switched to a fixed deal already. Those on a fixed-term tariff are advised to remain on it until the end of their contract. They will be unlikely to find a better deal on any new tariff at present.
Tenants on a default or variable tariff will be significantly affected. As a landlord, you could ensure tenants are aware of any help available, such as the new Energy Bills Rebate. All domestic electricity customers will receive £200 off their energy bill from October 2022, with the government funding the cost. However, the discount is a loan, rather than a grant, as it will be automatically recovered from people’s energy bills in regular £40 instalments during the next five years, starting in 2023.
In addition, 80% of households will receive a £150 Council Tax rebate from April onwards. This will not have to be repaid and the government will foot the bill. The Energy Bills Rebate scheme will cost the treasury around £9.1 billion.
Importance of energy efficiency
As a landlord, you can also ensure your properties are as energy efficient as possible and can carry out improvements if they aren’t up to scratch. The government is keen to make sure rental properties meet minimum energy efficiency standards.
New legislation requires landlords to increase their Energy Performance Certificate rating to a minimum of C on all their existing and new tenancies by 2028. If you carry out improvements step by step, this will mean the work can be staggered over the next six years, so you can spread the costs before it becomes mandatory.
If your properties are empty at any stage, make sure the bills for each period are accurate. Take meter readings at the end of the old tenancy and the beginning of the new, as you will be responsible while the property is vacant.
Rent arrears
If your tenants start falling into rent arrears due to energy price increases, once you’ve advised them on the financial support available, consider drawing up a payment plan to help them out until the crisis abates. In summer, when they will be using less electricity, they should be able to pay more off their rent arrears.
This is a far better approach than starting costly eviction proceedings for rent arrears and then having to find new tenants – who may end up in the same predicament anyway.
If your tenants pay their own energy bills direct to the supplier, you can’t increase their rent when the price increases come in. If the tenancy agreement makes you responsible for your rental properties’ energy supply, including it in the rent, you can charge the tenants extra to cover any increases.
However, you can’t simply apply a blanket rent increase. You can charge only for the units of energy actually used, meaning the kilowatt hours for electricity, as per the meter reading. You can also charge for your share of the standing charge and the VAT owed on the bill.
What is the average monthly rent?
The average monthly rent in the UK is £1,069 – an increase of 8.6% on this time last year. However, it varies considerably between different areas. For example, rent in London is among the highest in the country at £1,757 per calendar month.
In Wales, the average rent is £727 per calendar month – the second lowest of the home nations. The average rent in Scotland is £760 per month, while in Northern Ireland, it is £718 per month. The high rents in London and the south of England are pushing up the average for the whole of the UK.
While customers are already struggling, homeless support groups fear increasing the rent may put more tenants at risk of losing their homes.
As a landlord, help keep your own costs down by opting for furniture packages from a specialist supplier – a cost-effective choice for your furnished properties, with savings that can be passed onto tenants.