Almas Uddin
Founder and Mortgage Advisor
18 Nov 2022
The dramatic and painful spikes in electricity and gas charges won't be news to many. Still, the government's announcements about the energy price cap, introduced this month, may have painted a slightly blurry picture.
Price caps are generally a positive thing for homeowners, tenants and landlords, concerned that skyrocketing utility costs would send them diving into the red.
However, the challenge is that even with limitations on wholesale energy prices, the average family will still likely end up with utility bills worth around a third of their monthly outgoings in terms of mortgage repayments.
How to Manage Rising Utility Costs
If you are updating your outgoings or preparing a month-by-month budget, the first place to start is by working through bills, bank statements and estimated costs to get a firm idea about your expenses.
The reality is that the costs of electricity and gas (even if our usage has not changed) added to higher interest rates on non-fixed mortgage agreements is a double-whammy for even the hardest of savers.
We took a look at averages from 2019, pre-pandemic, to try and assess what the real-world changes look like for mortgage borrowers.
Mortgage and Utility Costs 2019 vs 2022
For our research, we based our statistics on a mortgage at a standard 75% LTV (i.e. with a 25% deposit) and a typical three-year fixed-rate deal.
In 2019, a homebuyer may have expected to pay around £8,629 in mortgage costs per year, based on the UK average property value of £233,366 and interest rates of roughly 1.73%.
Most households in that period paid approximately £1,593 for all their energy and water supplies, meaning utilities accounted for 18.5% of the yearly mortgage repayment values.
Fast forward to 2020, and average property prices and interest rates began to climb. However, utilities offset this extra expense, with average costs dipping to £1,452.
The impact was that an average homeowner would pay utility charges of 16.2% of their annual mortgage costs - based on £8,940.
Costs related to heating our homes, powering our appliances and financing our borrowing have since jumped.
Last year, a household may have spent £1,689 on utilities, making up 18.2% of the average yearly mortgage repayments of £9,265, but the comparable figures have risen even further in the 12 months since.
In 2022, a homeowner might expect to spend £12,643 over 12 months on their mortgage costs, compared to a huge increase to £2,390 in annual utility charges - reflecting how the dual pressures of interest rates and energy crises have risen in parallel.
Changes to Mortgage Costs and Utility Prices From October 2022
The energy price cap we mentioned earlier was by no means bad news - but it won't stem the tide of price rises that continue to impact everyday homebuyer budgets.
However, there is good news!
Without the price cap, our average mortgage borrower would have seen their costs hit a record high of £3,549 - or 28.1% of the typical cost of repaying a mortgage per year.
The cap of £2,500 a year for residential properties softens the blow somewhat, although it won't quite manage to offset the continued rises in interest rates.
Buying a first home or advancing up the property ladder has always been challenging, and the cost of living crisis cannot be written off as a media-generated issue. It is a very real, stark reality for millions of families balancing mortgage payments, utility charges and other outgoings such as groceries and fuel.
With most households looking at utilities equivalent to 30% of the mortgage spending, it is essential to make cost efficiencies where possible, particularly if you have switched to a lender's standard variable rate (SVR) or are approaching the end of a fixed rate deal.
Please get in touch with Revolution Finance Brokers if you would like independent, professional guidance about your best mortgage prospects or potential opportunities to reduce your mortgage expenses to below a less favourable SVR.
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