Average energy bills set to start to falling later this year

Ofgem has reduced the energy price cap by nearly £1,000, from £4,279 to an average of £3,280 a year, following steep increases in 2022.

Key takeaways

• The average cost of heating and lighting a home could fall later in the year following a near £1,000 reduction in the energy price cap
• But the move will not have an immediate impact on bills due to the government’s Energy Price Guarantee
• Instead, customers will still see their energy bills increase by around £500 a year from April

 

---

by Blackstones

The true cost of upgrading an older home to new build energy standards

New research reveals how much it costs to retrofit an older home to match the energy efficiency standards of new-build homes.

The cost of running a home has become one of the most widely discussed topics in recent months, with Google searches for the term ‘energy bill’ increasing by more than 800% in the last year.

So it’s unsurprising that improving the energy efficiency of our homes and reducing bills has become an increasing priority for homeowners and those looking to buy their first property.

The UK has one of the oldest and most inefficient housing stocks in the world, with nearly three quarters of our homes built before 1980.

Much of the conversation around ways to reduce energy usage has been dominated by quick wins and fast fixes.

This could be using draught excluders, swapping out baths for showers and switching off electrical appliances rather than leaving them on standby.

While these measures can help cut your energy bills, it takes a lot more to bring older homes up to modern energy efficient standards.

It generally requires retrofit works, which can’t be done overnight.

They can be disruptive, costly and time-consuming, so aren’t a reasonable option for everyone.

Our Get on with living report has found that the average three bedroom semi-detached home would cost £61,500 to upgrade to the current standards new builds are built to.

This figure rises to more than £73,000 when including exterior rendering and guttering.

New-build homes have energy efficiency built in, as they’re designed and delivered according to updated and evolving building regulations.

They also use new technologies and materials, and are built with environmentally-conscious practices to support and encourage natural biodiversity.

As a result of this improved efficiency, new-build homes use significantly less energy than their older counterparts.

So new build homeowners see much lower utility bills, on top of the money saved by not forking out for expensive retrofit works.

Our analysis of government data found 85% of new-build homes were awarded an A or B Energy Performance Certificate (EPC) rating last year.

Meanwhile, only 4% of existing dwellings reached the same energy efficiency standard. The most common energy performance certificate rating in the UK is D.

So what does it all mean for your energy bills?

A new-build home will save you an average of £2,600 on energy bills per year.

And our research shows new-build homeowners will save even more when the government’s Energy Price Guarantee increases on 1 April 2023.

From then, we expect new-build owners to save more than £3,100 per year in England and, due to an older housing stock, £3,300 per year in Wales.

Thinking that saving may be due to new builds being smaller than their older counterparts?

Our Watt a Save report explored this theory and found that new builds use significantly less energy per square metre over the course of a year.

We also found the new-build homes are larger, with an average floorspace of 90.7 square metres compared to existing dwellings at 84.4 square metres.

When considering you for a mortgage, banks take your monthly income and outgoings into account.

With new-build buyers seeing monthly savings of £260 on energy bills, they’re likely to be in a better position to afford monthly mortgage payments than those buying older homes.

However, mortgage lenders don’t currently factor in the energy performance of a home when looking at affordability calculations. A national average energy bill is used instead.

At the Home Builders Federation, we’re encouraging lenders and the government to make changes that’ll support and encourage more people to buy energy efficient new builds.

But in the meantime, choosing a new-build home could still open up your buying options.

House developers offer incentives, like contributing to your deposit or energy bills, and low-deposit mortgage schemes to increase your borrowing options.

Plus, the Welsh government has confirmed an extension of the Help to Buy scheme for buyers of new homes with a minimum EPC rating of B.

Given the cost-conscious and time-precious time we’re living in, it’s no surprise that many homebuyers are opting for the benefits of buying a new-build home so they can get on with living.

Key takeaways

• It could cost £70,000 to upgrade the average three bedroom semi-detached home to match the energy efficiency level of new builds
• 85% of new-build homes were awarded an A or B Energy Performance Certificate (EPC) rating last year, compared to only 4% of older homes
• New-build homeowners can expect to save more than £3,100 per year in England after the Energy Price Guarantee rise in April 2023

 

---

by Blackstones

New-build properties to save homeowners more than £3,000 a year on energy bills

New-build homeowners and renters are expected to save £3,000 on gas and electricity from April, compared with those living in more traditional homes, according to the Home Builders Federation.

Key takeaways

• Around 85% of new build houses and flats have an Energy Performance Certificate rating of A or B, compared with just 4% of existing dwellings
• More than half of homebuyers are now factoring running costs into their purchasing decision
• The HBF is calling on lenders to introduce green mortgages that take into account the energy efficient properties of new homes.

 

---

by Blackstones

Mortgage rates are falling and choice is increasing

More than 4,000 different deals are now available as the mortgage market continues to stabilise.

Key takeaways

• Mortgage rates are falling and product choice is increasing as the market continues to stabilise
• A total of 4,341 different deals are currently available, the first time product choice has risen above 4,000 since August last year
• The average cost of a five-year fixed rate product for those with 40% to put down is now back below 5%

---

by Blackstones

Mortgage rates fall below 4% for lower loan-to-value mortgages

The best new mortgage deals are now at below 4% for lower loan-to-value remortgages, a major improvement on the average rate of 6% in November 2022. Here's how much further I think they will fall.

The last 12 months have been a rollercoaster for mortgage rates. While mortgage rates have been falling steadily over the last decade, they spiked last year as a result of central banks increasing borrowing costs to curb demand and stop inflation getting out of control.

In the UK, the cost of mortgages shot up even higher as a result of the fallout from the Liz Truss mini budget in the autumn of 2022. Average mortgage rates peaked at over 6% having started 2022 at less than 2%.

The increase in mortgage rates is now reversing.

Average rates for new mortgages are starting to fall back quickly. Bank of England data for January 2023 shows the average rate for a new 75% loan-to-value 5-year fix is 4.8% and on a clear downward trend.

Mortgage rates vary according to the size of the mortgage and the value of the home it's borrowed against. And smaller loans get the best prices.

The cheapest rates are starting to emerge at below 4% for people staying in their homes and remortgaging with smaller loans. This is a major improvement to the 6% average last November.

The pricing of mortgages for buyers and those looking to remortgage is a complex process and much depends upon the path of interest rates and inflation in the UK and overseas.

We expect competition among banks to win new mortgage business to be strong in 2023 and this will mean some better deals for borrowers this year.

While it is welcome news that mortgage rates are falling, there is a risk that if inflation doesn't slow as fast as the Bank of England expects it to, interest rates may stay higher for longer.

Average UK mortgage rates are likely to settle in the 4% to 5% range in the coming months. This is certainly higher than recent years but still relatively cheap compared to historic levels for mortgage rates.

Homeowners who want to move in 2023 are keeping a close eye on mortgage rates and the outlook for house prices.

The value a seller can achieve from their home today unlocks their next move, so the risk of a lower sale price - as well as higher borrowing costs - will impact what they can get with their next home in terms of location and size.

The start of the year has seen demand for homes tracking inline with the pre-pandemic years of 2018 and 2019. There is evidence that some would-be movers are holding back and waiting to see if the projections for big price falls and a year-long economic recession will materialise.

The UK avoided recession in 2022 and the outlook is improving for 2023, although economic growth in the UK is set to lag behind other major western economies.

House price growth stalled in in the final quarter of 2022 and while sellers are taking bigger discounts of up to 4% to achieve sales, it looks very unlikely that homeowners are facing a major house price re-correction in the year ahead.

Sellers will need to accept that they might have to give up some of those record pandemic price gains to achieve a sale.

Every home is different, so it’s really important to speak to an estate agent to get an accurate view on who is in the market to buy a home like yours.

Affordable homes in high demand areas will still attract strong interest. Meanwhile, higher value homes that have seen prices surge ahead over the pandemic will need to be priced more carefully if the seller is serious about attracting interest and moving.

The good news is that lower mortgage rates will reduce the hit to buying power for households looking to move home. In turn, this will limit the downward pressure on home prices in 2023.

The impact will vary across the UK, with the higher value housing markets likely to see the greatest pressure on sellers to be realistic about pricing expectations.

In the more affordable, lower-value housing markets, there will be less downward pressure on prices and some of these markets may avoid any year-on-year reductions in prices altogether.

Key takeaways

• Mortgage rates for the best products have fallen sharply
• Outlook for mortgage rates and house prices are key for home sellers
• Demand for homes is in reasonably good shape at the start of 2023
• Sizeable house price correction is highly unlikely

---

by Blackstones

UK cities see record-high rent increases

The average UK rent has increased £120 in the past year with London, Manchester and Glasgow seeing the biggest hikes.

The rate of rent increases in 2022 were at the highest level for the last decade. In December, the UK average rent was £1,118 which is 11.5% or £120 higher than a year ago.

Yet, the pace at which rents are increasing has slowed since peaking in July 2022 when rents were growing by 12.1%.

This growth in rents for new lets reflects the experience of a quarter of all renters who move each year.

For those staying put, the pace of rental increases is slower. Data from the Office for National Statistics on all private rented homes shows an average increase of 4.2%.

There isn’t a single answer to this question as the pace at which rental values rise depends on a combination of different national and local factors.

In 2022 we saw a chronic imbalance between the supply of homes to rent and the level of demand from renters. This encouraged competition between renters and gave rise to sizeable rent hikes.

High inflation, high employment and strong wage growth in recent years are additional drivers of rental growth, especially in urban centres.

As London continues to recover from the pandemic slowdown, the capital is the region with the highest annual rental growth in the UK. In the last 12 months, the average rent for a new let increased by 16.1%, adding £270 to the average monthly rent.

High levels of demand in inner London are behind record-high rental growth, where rents went up by 17.4% on average in contrast to 13.3% in outer London.

The London Borough of Newham had the highest rate of rental increase anywhere in the country. In 2022, the average rent there increased by 21.2% or £320.

Popularity amongst professionals and students, regeneration projects delivering more newly-built stock of homes to rent and new connections with central London drive rental growth in this area.

In contrast, Havering - a leafier borough further east - saw the lowest level of rental growth in London as renters' preferences changed in favour of inner cities. Rents in this area increased by ‘only’ 9.2% last year, adding £120 to the average monthly rent.

High levels of rental inflation are not exclusive to the capital.

Manchester and some Scottish cities have also been affected by the record-high increases in prices of new lets.

In Manchester, the average rent is now £977 per month, up from £847 in December 2021. Rents in inner Manchester, Trafford and Salford are growing at the fastest rate in the North of England. In all three areas, the average new rent is now £140 higher than a year ago.

Our data also shows very high rental growth in the Scottish cities of Glasgow (13.7%), Edinburgh (+12.7%) and Dundee (12.6%). This above-average level of price increases for new lets is driven by a growing gap between demand from renters and the supply of homes to let in these cities.

We expect rents to continue to increase albeit at a slower rate in 2023. Supply will remain tight due to lower levels of new investment by landlords. A strong labour market and higher borrowing costs for home buyers will continue to stimulate demand for rented homes.

Fixing supply issues will take a long time and a larger renting budget is not an answer for everyone. Renters in the market for rental homes need to prepare for a greater set of compromises. Searching for smaller properties, an alternative location or modest features are common tactics.

However, steep rental growth is not sustainable in the longer term. Affordability pressures will start to limit the upward pressure on rents and so we expect rental growth to slow down in 2023 towards a national average of 5%.

Key takeaways

• Average UK rent increases by £120 over 2022 to reach the highest level in a decade
• Renters in London see the highest rent increases in the UK with annual growth of 16.1%
• Rents are also increasing at a record pace in other cities such as Manchester, Glasgow and Edinburgh

---

by Blackstones

Interest rates rise again but mortgage rates keep falling

Despite increases to the cost of borrowing, fixed rate mortgages are continuing to come down, falling by 0.35% for two-year deals and by 0.43% for five-year ones.

The Bank of England has increased interest rates by 0.5% to 4%, the highest level since October 2008.

It was the 10th consecutive meeting at which the Monetary Policy Committee (MPC) has hiked the official cost of borrowing, as it continues to try to bring down high inflation.

The latest increase adds a further £60 a month to repayments for homeowners with a £200,000 mortgage.

People with variable rate mortgages have now seen their monthly mortgage costs jump by £440 since the MPC first started to raise interest rates from 0.1% in December 2021.

An estimated 850,000 homeowners have a tracker mortgage, and 1.1 million are on their lender’s standard variable rate – both of which move up and down in line with changes made to the Bank Rate.

But despite increases to the cost of borrowing, the average rate charged on new fixed rate mortgages has continued to come down, falling by 0.35% for two-year deals and by 0.43% for five-year ones, offering hope to those who need to remortgage in the near future.

There was further good news for borrowers, with the tone of the minutes that accompany the MPC’s interest rate announcement suggesting the Bank Rate could be close to peaking.

There was a notable shift in language, with the MPC saying there “would” be further increases to interest rates “if” there was evidence of persistent inflationary pressures.

This contrasts with its previous statements that it would continue to “respond forcefully” and “take the actions necessary” to get inflation back down to its target.

Two members of the nine-strong MPC also again voted to leave rates unchanged.

Why has the Bank Rate been increased?

The MPC began increasing interest rates from their record low in December 2021 in a bid to bring down inflation.

Despite increasing the Bank Rate by 3.9%, inflation, which measures the rate at which the cost of goods and services increases, has remained stubbornly high.

The latest figures show it stood at 10.5% in December, down only slightly from November’s figure of 10.7%, and still well above the MPC’s target of 2%.

Part of the problem for the MPC is that inflation is being stoked by external factors, such as the conflict in Ukraine which has pushed energy prices higher.

But inflation does now appear to be on a downward trend, and is expected to fall to around 4% by the end of this year.

In further good news, the MPC also said it expects the UK’s recession to be less severe than previously thought.

It is now predicting that it will last for only one year, rather than two, with economic growth contracting by just 1%, rather than the 2.9% previously predicted.

Economists now expect the Bank Rate to peak at 4.25% later this year, following the MPC’s latest announcement.

What should I do about my mortgage?

Despite interest rates increasing by 1% since the end of October, the cost of fixed rate mortgages has been moving in the opposite direction, falling by just over 0.9% during the same period.

Interest charged on fixed rate mortgages shot up at the end of September last year in the wake of then Chancellor Kwasi Kwarteng’s mini-Budget.

It triggered a sharp rise in government borrowing costs - which influences the rate at which lenders borrow money for fixed rate mortgages.

But they have been easing downwards since Jeremy Hunt took over as Chancellor, and this trend is expected to continue in the coming months.

After hitting highs of around 6%, mortgage rates for new business are now generally below 5%, and they are expected to remain in the 4% to 5% range for most of 2023.

There is also good news if you are planning to remortgage but are worried about passing your lender’s affordability test due to the rising cost of living.

Following a meeting with the government and the regulator, lenders have agreed to allow customers who are up to date with their payments to switch to a new mortgage deal without having to do another affordability test.

If you are on a fixed rate mortgage

More than 1.4 million homeowners are on fixed rate mortgages that are due to expire this year.

If your deal is due to end soon, you should start looking around for a new rate now, as lenders will allow you to book on to a new rate up to six months before your existing one ends.

But if you see a deal that you like the look of, you need to be prepared to move fast, as the average mortgage is currently only available for 15 days before lenders withdraw it.

The average interest rate charged on a two-year fixed rate deal is currently 5.44%, while on a five-year one it is 5.2%.

But it is important to remember that these rates are just averages, and best buy deals for people with large equity stakes in their property are available for below 4%.

If your current mortgage deal is not due to end soon, you don’t have to do anything, as the rate you are paying now will stay the same until the end of your product term, even if interest rates increase further.

If you are on a standard variable rate (SVR) mortgage

The interest charged on SVRs has been steadily increasing since December 2021, as rates on these automatically move up and down in line with changes to the Bank Rate.

The average interest rate charged on an SVR was already 6.84% before today’s announcement, and it is likely to rise above 7% following the latest hike.

As a result, you are likely to want to look into remortgaging on to a more competitive rate.

Remortgaging from an SVR of 6.84% to an average two-year fixed rate deal of 5.44% would save you nearly £175 per month, based on a £200,000 mortgage.

If you are on a tracker mortgage

If you are on a tracker mortgage, your rate will automatically increase following today’s interest rate rise.

Remortgaging to a fixed rate deal would protect you from any further interest rate increases, but economists are now predicting that the Bank Rate is close to peaking.

If you stay on your current deal, the cost of fixed rate mortgages may have fallen further by the time you need to remortgage.

When making a decision, it is important to think about how much slack you have in your budget to afford your mortgage repayments if the Bank Rate rises by more than is currently expected.

What can I do if I’m struggling with my mortgage?

If you are struggling with your mortgage payments, there are two main ways you can make them more affordable.

The first is to increase your mortgage term.

For example, monthly repayments on a £200,000 mortgage on a fixed rate of 6% would be £1,450 if you are repaying it over 20 years.

But monthly repayments fall to £1,210 if you increase the term to 30 years. They fall even further to £1,150 if you repay the mortgage over 35 years.

If you do decide to go down this route, it is important to understand that although it will reduce your monthly repayments in the short term, you will end up paying a lot more interest over the entire life of your mortgage.

The second option is to talk to your lender about being put on to an interest-only mortgage for a period of time.

Only paying interest significantly reduces your monthly payments, although it does mean that the amount you owe is not being reduced, so you will need to resume full repayments at some point.

If you are really struggling, you can ask your lender for a short-term payment holiday. This enables you to take a break from making repayments, with the interest portion of your monthly payment added to your outstanding mortgage debt.

If you think you may run into difficulties, it is important to contact your lender as soon as possible.

Lenders are obliged by the regulator to work with customers who are struggling with mortgage repayments to find a solution, and they can only repossess a home as a last resort.

But options become much more limited if you have already missed a payment.

Key takeaways

• The Bank of England has increased interest rates by 0.5% to 4%, the highest level since October 2008
• Yet mortgage rates are continuing to fall, and economists believe the Bank Rate is now close to peaking
• Nearly 2 million homeowners with variable rate mortgages will see their monthly repayments rise by a further £60 a month, based on a £200,000 loan

---

by Blackstones

Energy efficient homes holding their value in market slowdown

Potential buyers are showing a greater interest in homes with high energy efficiency ratings.

Energy efficient homes are outperforming other properties in the current housing market.

Six out of 10 estate agents say homes with high energy efficiency ratings are holding their value despite the overall market slowdown, according to the Royal Institution of Chartered Surveyors.

At the same time, 40% said they are seeing more interest from potential buyers in energy efficient homes.

And 41% said sellers are attaching a price premium to their home if it has a high energy efficiency rating.

Mairead Carroll, senior specialist in land and property standards at RICS, said:

“It will be fascinating to see how important energy efficiency becomes to buyers over the next 12 months.”

The survey reflects our own findings that buyers are becoming more value-conscious due to higher mortgage rates, inflation and the cost-of-living squeeze.

The average household has seen its gas and electricity bill double from £1,277 per year at the start of 2022 to £2,500 now.

The government’s Energy Price Guarantee has kept bills lower than they might otherwise be. It limits the amount suppliers can charge per unit of gas or electricity.

But the guarantee will change in April and the average annual bill for gas and electricity is expected jump to around £3,000.

These rising costs have led to home buyers increasingly factoring in the cost of heating a home to their moving decisions.

The growing appeal of energy efficient homes isn’t just because buyers want to save money on their bills.

Banks and building societies are also factoring in energy costs when assessing whether people can afford a mortgage.

If a lender thinks your budget is too tight to cope with further increases to energy costs, they may only be prepared to lend you a lower amount.

First-time buyers and those on lower incomes are most likely to be impacted.

On the other hand, if you can show lenders that your home has a high energy efficiency rating - and so it costs less to run and heat - they’re less likely to be concerned about your impact to manage future gas and electricity price rises.

Properties are given an Energy Performance Certificate (EPC) which rates their energy efficiency on a scale from A to G.

Find out your EPC rating - GOV.UK

A is the most efficient EPC rating and G is the least efficient. If you’re selling or renting a property, it’s a legal requirement to have an up-to-date EPC rating.

While 80% of new-build homes have an EPC rating of A or B, only 3% of older properties have a rating this high.

There are a number of steps you can take to make your property more energy efficient.

Insulating your loft will prevent up to 25% of heating being lost through the roof, while installing cavity wall insulation will help to stop 35% of heat being lost.

Installing double or triple glazed windows or replacing an old boiler with a new energy efficient one will also make your home cheaper to run.

On a smaller scale, using energy efficient light bulbs and sealing any gaps letting in draughts in your home will also have an impact.

There are a number of schemes to help you carry out energy efficiency home improvements.

If you’re claiming certain benefits, energy companies have an obligation to help you under the Energy Company Obligation scheme.

The scheme will pay for loft or cavity wall insulation (as long as it’s suitable for your home), double glazing, and even a new boiler if your current one has broken.

Energy Company Obligation scheme - Ofgem

If you own a home in England or Wales, the Boiler Upgrade Scheme can give you £5,000 towards the cost of an air source heat pump or biomass boiler.

Or you can get  £6,000 towards the cost of a ground source heat pump.

Boiler Upgrade Scheme - GOV.UK

Another option is the Green Homes Grant Local Authority Delivery Scheme.

Grants averaging £10,000 are available to homeowners to install solar PVs, air source heat pumps, and loft, underfloor, external wall and cavity wall insulation.

To qualify, you must have a household income of less than £30,000 a year and your home must have an EPC rating of D, E, F or G.

You can apply through your local council.

Green Homes Grant - GOV.UK

The government also recently launched the Green Home Finance Accelerator scheme.

Under this scheme, £20 million is being made available to lenders to fund affordable loans for homeowners carrying out energy efficient improvements.

Green Home Finance Accelerator scheme - GOV.UK

Key takeaways

• Energy efficient homes are outperforming other properties during the current challenging market conditions
• Six out of 10 estate agents said homes with high energy-efficiency ratings were holding their value
• Four out of 10 said they were seeing more interest in energy efficient homes from potential buyers

 

---

by Blackstones

Moderate house price falls set to continue

Homeowners who sold at the end of 2022 saw small price falls but it’s doing little to dent the equity most gained during the pandemic.

Most sold homes saw their prices fall in the last quarter of 2022 after a turbulent final few months of 2022.

This meant the average house price rose 6.5% in the year to December 2022, which is the lowest rate of annual growth since May 2021.

It’s a marked slowdown compared to the 8.3% rise in the previous year when moves and prices were still fuelled by the pandemic boost to the market.

And we expect further single-digit price falls in the first half of 2023.

But thanks to a big jump in home values from 2020 to mid-2022, these modest price falls will do little to dent the equity most homeowners have gained over the long-term.

The number of enquiries sent to estate agents fell by 50% in the last quarter of 2022 compared to the previous quarter.

With fewer buyers in the market and sellers less certain about achieving a sale, buyers have gained the ability to drive some bargains.

They’re now getting an average of 3% to 4% off asking prices originally set by sellers.

But discounts now look to be staying at this level and we don’t see any reason for bigger discounts in the coming months.

Our monthly House Price Index uses more data than any other, so we can get the most accurate picture of house prices across the UK.

However, it's early days to get a clear read on the market outlook for 2023.

Many households thinking about a home move this year are likely to be waiting to see if mortgage rates and house prices fall further.

The economic outlook has improved a little in recent weeks, with mortgage rates settling in the 4% to 5% range.

Buyers and sellers alike will gain confidence from this but the outlook for the housing market in 2023 will become clearer after Easter.

So far, we know that the number of buyers in the market has already rebounded to pre-pandemic levels, in line with 2018 and 10% higher than in 2019.

But priorities are changing as buyers become more value-conscious, with flats and towns near big cities moving up the wish list.

The squeeze on disposable incomes may prompt home moves too, with some seeing it as the time to release equity or find a cheaper-to-run home.

Meanwhile, demand from first-time buyers will remain as they look to escape the rapid growth in rents.

What are buyers looking for in 2023?

While house price falls are never welcome news for homeowners, our latest Value of Housing report might go some way to reassure you.

It found that 92% of homeowners enjoyed value gains on their homes in 2022 despite an uncertain end to the year.

The average capital gain was £19,000 while nearly 3 million homeowners made more than £50,000.

How much value did your home gain in 2022?

The report showed that the total value of homes in the UK is over £10.5 trillion.

With around £1.6 trillion of mortgage value, that leaves homeowners with almost £8 trillion in equity.

---

by Blackstones

What are buyers looking for in 2023?

Looking to sell this year? Find out what buyers are on the hunt for right now and which locations they’re looking in.

Key takeaways

• It's all about apartments for home buyers right now
• And towns near big cities are proving to be the hottest locations
• 2023 has kicked off to a slow start, but our research team believe demand for homes is set to rise as mortgage rates continue to fall

 

---

by Blackstones