As energy bills rise to new record heights, some in the property sector are worried that tenants will no longer be able to afford rent. Are we heading for a winter arrears crisis, or will the new energy price cap prevent disaster?
Towards the end of August, Ofgem set a new energy price cap of £3,549 per year for an average household – an increase of about £1,600. Experts predicted more price hikes in 2023, with bills reaching over £5,300 in January and then rising again to more than £6,600 in April.
Property professionals have been worried that the industry would face a massive increase in arrears as tenants would potentially have to choose between keeping the lights on and paying rent. Some warn that energy price rises would do more damage to the sector than the COVID-19 pandemic.
Pressure groups have estimated the millions of tenants could fall into arrears this winter – and called for an immediate end to in-tenancy rent increases and no-fault evictions to protect them. Meanwhile, landlords pulled ‘bills included’ tenancies from listings websites, worried that they would have to cover spiralling bills themselves without being able to increase rent to match.
That crisis may now have been headed off. The new Energy Price Guarantee will cap the average household energy bill at £2,500 per year for two years. Customers who have already locked into higher fixed rates will also get a discount.
But agents will still need to be on the lookout for missed or partial payments. Even with the £2,500 price cap in place, energy costs will be almost double what they were last winter. And meanwhile, the prices of other essentials like food are also rising.
However, the Energy Price Guarantee means the situation will probably be manageable with the tools and processes currently available to agents: automated payment reminders, mediation and repayment plans. During the COVID-19 pandemic, agents and landlords kept a lid on arrears even though furloughed workers saw their income drop by 20%. More landlords are now also asking tenants for rent guarantors, meaning they can get the rent they are owed even if the tenant can't pay.
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