The end of March marked the first time since Q1 2017 that the average annual energy bill was equivalent to paying an additional month of rent each year, according to new research from Hamptons.
This is likely to mark a recent peak, with a fall in the energy price cap from 1 April 2024 set to reduce average bills by 12%, followed by further falls pencilled in from June.
Annual energy bills (gas and electricity) as a proportion of the average monthly rent
Rented homes tend to be smaller and slightly more energy-efficient than the average owner-occupied property. This typically means gas and electricity bills are lower than the national average.
During the 12 months to Q1 2024, average annual gas and electricity bills amounted to £1,331 for the typical rental home, a figure that stands £1 higher than the average monthly rent in Great Britain of £1,330.
Seven years ago, the average rent stood at £953 pcm and annual gas and electricity bills at £998. Between then and Q1 2022, while rents continued to rise, - energy bills fell in cash terms until wholesale prices spiked in early 2022. Consequently, in Q1 2022, annual energy bills made up just 65% of the average monthly rent, before rising to 88% in Q1 2023 and 100% in Q1 2024 when energy prices peaked.
Over the last decade (Q1 2015 - Q1 2024), rents have risen by a total of 54% and energy bills by 46%. Almost all this rise in gas and electricity bills has come during the last two years.
Until then, energy bills had mostly been falling in both cash and real terms. This means that in total, tenants are paying an extra £5,993 each year in rent and energy bills than they were 10 years ago.
Falling energy costs to offset rises in rent
However, if energy consultants Cornwall Insight’s expectations are correct, energy bills are set to fall 17.4% over the next 12 months. This would mean that between Q1 2014 and Q1 2025, they will have risen by a total of just 24%.
Meanwhile, if rental growth continues at its current pace, rents will have grown by a total of 64% by Q1 2025, nearly three times faster than energy prices. Overall, the fall in energy bills will offset around a fifth of rental growth.
In a similar fashion to energy costs, most rental growth has taken place since Q1 2022 when rising interest rates and broader inflation left landlords looking to push up rents. If these projections are correct, it will mark a return to normal, leaving average annual energy bills accounting for 80% of the average monthly rent.
Rental growth
The average pace of rental growth has continued to slow, with the average price of a newly let property in Great Britain (GB) rising 6.7% over the 12 months to March 2024. This means that rental growth has nearly halved since it peaked at 12.0% in August 2023.
However, rents still stand 31% above their pre-pandemic average, while in the North West rents are 42% above their pre-pandemic peak, higher than anywhere else.
March 2024 also marked the first time that the average cost of a newly let home in the West Midlands passed the £1,000pcm mark. This is the first region outside the South of England to see average rents exceed £1,000pcm. The West Midlands is also the only GB region where rents are still growing at a double-digit pace.
Inner London rents have risen by just 0.4% over the last 12 months, with the rate of growth slowing faster than anywhere else in the country. With limited house price growth, Inner London has also only seen rents rise 17% compared to pre-pandemic levels, the smallest increase anywhere in Great Britain.
Aneisha Beveridge, Head of Research at Hamptons, said: “During the last two years, tenants have found themselves squeezed financially from all sides.
"While their ability to afford the rent is typically tested when they move into a new home, increases in rents have come alongside big hikes in energy and food bills. Even though increases in these costs are slowing and, in some cases, reversing as inflation nears its 2% target, living costs remain much higher than two years ago.
“In the short term at least, falling energy prices are likely to see the issue drop down the political agenda.
"Therefore, minimum EPC standards for rented homes look unlikely to be introduced by the current government. But with a potential change of government, in the medium-term, landlords might see renewed pressure to make the homes they’re renting out more energy efficient.
“When the number of rental homes on the market is up 30% on last year and the number of potential tenants is down by a fifth, rents would normally be falling. But these year-on-year comparisons mask the longer-term picture, where supply is down and demand is up.
"While rental growth has slowed from record levels, as more landlords roll off cheaper fixed-term deals, rents are still creeping upwards. In most places outside central London, landlords are still achieving record rents on the back of long-term tax and interest rate pressures.”
