How will the new energy price cap impact mortgage affordability?

Industry experts react as regulator raises maximum charge

How will the new energy price cap impact mortgage affordability?

The Office of Gas and Electricity Markets (Ofgem) announced on Friday that the energy price cap will increase by around 80% from the current £1,971 to £3,549 starting October 1.

The energy regulator said the increase reflects the continued rise in global wholesale gas prices, which began to surge as the world unlocked from the COVID-19 pandemic.

According to Jonathan Brearley, chief executive of Ofgem, the record price increases were driven by Russia’s aggressive economic act of slowly and deliberately turning off gas supplies to Europe.

“Ofgem has no choice but to reflect these cost increases in the price cap,” Brearley stressed. “We know the massive impact this price cap increase will have on households across Britain, and the difficult decisions consumers will now have to make.”

In terms of mortgages, the change to the energy price cap will impact affordability models in different ways, depending on how the lender captures the information, Scott Taylor-Barr, financial adviser at Carl Summers Financial Services, said.

“Some lenders use data from the ONS to drive the outgoings in their affordability models,” he explained. “These lenders will likely see reduction in the maximum loans that any given income can generate as the increased energy costs filter through from the ONS data.

“Other lenders ask the broker to enter this data from the figures on the client's bank statements – this means that those who are especially frugal with their energy may be less disadvantaged in terms of the size of mortgage they can generate with this type of lender, than one that uses ONS data.

“Brokers will have a good idea of which lenders use which type of model, as well as having software that can compare multiple lenders’ affordability models at once, allowing them to guide their clients to the best outcomes for their individual situations.”

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Imran Hussain, director at Harmony Financial Services, said that it will be surprising if the latest price cap will not impact mortgage affordability for the average working person and families.

“Lenders are not daft and will want to ensure they lend responsibly,” Hussain added. “As a result, they will either be making adjustments right away or imminently. The value of advice now has skyrocketed to ensure borrowers get the best outcomes.”

Robert Payne, director at Langley House Mortgages, pointed out that many lenders have already factored higher energy costs into their affordability calculations, and it is impacting those on lower incomes the most.

Graham Cox, director at, concurs that lenders are already factoring the surge in energy prices and other cost of living increases into their affordability models.

“Lenders and consumers are understandably fearful,” Cox said. “With mortgage costs also soaring, there’s only one direction for house prices to go and it’s not up.”

Jamie Lennox, director at Dimora Mortgages, is also certain that the huge price cap increase is going to result in lenders reviewing their affordability calculators in the coming weeks.

“We’ve already seen signs of this happening,” Lennox noted. “These price increases will certainly make buyers think more about moving and what type of property to buy with a greater emphasis on looking at the Energy performance Certificate of the property. Some will end up ruling out moving house or ignore a whole type of property that are deemed less energy efficient.”

Read more: Hard times call for careful planning – especially for adverse borrowers.

“The latest energy price cap can’t help but impact affordability assessments,” Rhys Schofield, managing director at Peak Money, stated. “If anything, though, I see this keeping mortgage brokers very busy. The reality is that a lot of people simply won’t be able to swallow increased energy costs on top of higher rates come remortgage time, which will force many to sell up and downsize.

“It’s imperative that customers coming to the end of a fixed rate start planning six months out in order to secure a new rate or work out how they are going to cut their cloth accordingly.”

“Realistically, there doesn’t appear to be any let up on the squeeze of income to pay for priority bills for most households for the next 12 to 18 months,” Richard Pike, chief sales and marketing officer at Phoebus Software Limited, said. “Lenders need to start being very proactive on offering more high-level generic budget planning and guidance on keeping household expenditure to a minimum.

“Of course, this goes beyond the norm in terms of pro-active arrears management, but investment in this assistance now will only strengthen borrower relationships for the future and highlight any potential arrears issues sooner rather than later.”