The Energy Price Guarantee: Could this be the turning point?

With tax rises, interest-rate hikes and continuing inflation, the economic landscape looks pretty daunting right now. However, in his Autumn Statement the Chancellor made some important commitments which may go some way to restoring confidence in the mortgage market. The crisis may not be over, but we believe there may be some light at the end of the tunnel.

The crisis continues

With inflation running at around 10% and wages increasing by a little over half that*, most people in Britain are feeling the pinch. For those on lower incomes who typically spend more of their money on essentials, the situation is much more acute, as food and fuel prices are up even higher. Add the recent increases in the Bank of England’s base rate and the subsequent impact on the mortgage market, and it looks like a perfect storm for home buyers. Especially first timers.

The crisis has already put millions into real difficulty, and it will inevitably lead to more people missing payments. We’ve highlighted the situation in a recent article, where our research showed that 14% are prepared to skip a utility bill in order to meet other expenses. You can read the article here >>

What the government is doing about it

After some false starts under Liz Truss’s government, the Chancellor has now confirmed that the Energy Price Guarantee - commonly referred to as ‘the cap’ - will limit the price we pay for gas and electricity. The average household bill will be no more than £2,500 until April 2023, rising to £3,000 over the following 12 months. While that’s still a lot of money, the cap is a welcome note of certainty that should make it easier for your clients to budget over the medium term.

Alongside the EPG, the government has announced a new Energy Efficiency Taskforce (EETF) which should help households cut energy consumption - although this won’t kick-in until 2025.

Another very welcome initiative is an increase in the nil rate threshold for residential stamp duty in England and Northern Ireland - from £125,000 to £250,000 for buyers moving up the ladder, and from £300,000 to £425,000 for first-timers. The maximum value for FTB relief goes up from £500,000 to £625,000. Although the cut is temporary, it’s in place until Spring of 2025. That should give a boost to the housing market, and will be a real help to many hard-pressed FTBs.

Looking ahead

The cost-of-living crisis has certainly had an impact, and recent confusion and changes of direction have contributed to a sense of uncertainty. But now the EPG should make affordability calculations a little easier when you’re preparing a case for a new mortgage. The threshold increases for stamp duty should be a big help too - particularly if you’re working with first time buyers in the more expensive parts of the country.

So it’s good news, then?

We welcome. the EPG in bringing a degree of certainty, and although the cap will be less generous from April, we’re glad to see there’ll be at least some continuing support for households over the following year. The changes to stamp duty will have a significant beneficial effect, too.

“Unlike most of the big high-street lenders, we are ready to help even when the situation is complex. By underwriting each case individually and manually instead of depending on credit scores and algorithms, we can often help when others might not.” Sara Palmer, Head of Distribution

As confidence returns

While the cost-of-living crisis is likely to be with us for some time, initiatives like those announced recently should help restore some confidence in the market.

As a broker, you’re in a great position to have open dialogue with your clients, balancing constructive optimism with a realistic view of the circumstances. We are here to work with you, helping people in challenging positions into the homes they need and deserve. We’ll always do what we can to make it happen.

*Office for National Statistics, ons.gov.uk