How will the energy crisis affect your tenants' cost of living and ability to pay rent?

25 October 2021

Energy prices are expected to continue to rise, which will add to the growing cost of living. Rik Smith, Goodlord's Head of Tenancy Services, shares his expert analysis on what that may mean for your landlords' tenants.

The government's Heat and Buildings Strategy to decarbonise homes in the UK couldn't come at a better time. As wholesale gas prices rise - pushing smaller suppliers, with no limited funds to protect them, out of the market - our dependence on fossil fuels has been laid bare, letting the current energy crisis gain a foothold. Here's how this situation could play out in the coming months and how it may affect your tenants' cost of living.

More energy suppliers failing

First up, if a supplier hasn't already protected itself by hedging its energy demand - or agreeing contracts in advance - when it was cheaper to buy, it is likely to come under enormous and sustained financial pressure. It may not be able to afford to cover the extra cost over and above what its customers are paying, at which point it may go bust.

Around 30% of the market is made up of these small suppliers - but, never fear, your tenants won't lose their money if they have a credit balance e.g. if they've been paying their bills by direct debit. Their supply of gas and electricity is secure, even if the energy supplier fails thanks to the regulator’s (OFGEM) “Supplier of Last Resort” safety net.

Download a free FAQ template to answer your tenants' questions on the energy  crisis

Energy prices will continue to rise

However, gas prices for consumers will continue to rise. On 1 October, the cap on the price the consumer pays increased. The maximum cost that your tenants pay per unit of energy still has a ceiling, but their energy bills will have grown by an average additional annual cost of £139 since that date.

The cap is calculated by OFGEM, which means that we can anticipate what the next increase for bill payers is likely to be. Come April 2022, when the price cap will be reviewed again, your tenants' energy bills will very likely jump by a further £400-£500 annually on average - a genuine addition to the cost of living for over 50% of UK households that aren't on a fixed price energy deal at the time.

Low income households may struggle

There are members of society today who struggle to pay their bills, and are in fuel poverty. This is when you spend more than 10% of your wages on your energy bill. Those who are least fortunate and most dependent on others actually end up living in the poorest quality of accommodation, with low energy efficiency - and they may be facing the choice of whether to heat or eat as this cost of living increases. Coming off the back of a global pandemic where 7.5% of tenants surveyed in Goodlord's State of the Lettings Industry Report 2021 felt that their income wasn't secure, this may add further pressure to some households' ability to pay rent.

You should be prepared to advise any of your tenants who fall into this category of the financial help available to help them to avoid this situation, and suggest that they speak with their energy supplier too. You can also continue to work with tenants to assess their financial situation and, for those suppliers that collapse, you can also help advise your tenants by checking where their customers' new supply will come from with our energy supplier tracker.

How this may affect your landlords

The energy crisis may of course concern your landlords too, especially if they include bills in the rent across a large portfolio of properties. When planning their rent reviews, you should ensure all costs are considered appropriately.

If your landlords - or tenants - are in the market for a new energy deal now, they can gain price confidence today with a “Fixed Price” deal which may be more expensive than a variable deal, but these may be cheaper in the long run considering the likely increase in variable prices come April 2022. It is possible that fixed price deals may come down in the first half of 2022, but that’s dependent upon the wholesale market cooling down. However, everyone should keep running comparisons to find a good deal for their properties and homes in the meantime.

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