The cost of an annual energy bill was found to be equivalent to a full month’s rent in Q1, data from an estate agency group revealed.
The Hamptons Lettings Index showed that the cost of energy over a year peaked at £1,331 for an average rental home, just one £1 more than the average monthly rent across Britain.
This was the first time since Q1 2017 that yearly energy bills cost the same as a month’s rent. During this period, the average rent was £953 per month, while annual gas and electricity bills were £998.
In the seven years since, average rental costs have risen, while energy bills fell in cash terms. When wholesale energy prices started to increase in early 2022, energy bills made up 65% of the average monthly rent. This rose to 88% by Q1 2023, then 100% in Q1 this year.
Hamptons said most of the increases in gas and electricity bills had happened in the last two years.
Over the last decade, rents have gone up by 54% in total, while energy bills have risen by 46%. Overall, tenants are paying an additional £5,993 each year in rent and energy bills compared to 10 years ago.
Higher living costs
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.”
Relief from falling energy prices
Energy bills are expected to fall by 17.4% over the next 12 months, according to predictions from Cornwall Insight.
This would put the total rise in energy bills between Q1 2014 and Q1 2025 at 24%.
If rental growth continues at its current pace, by Q1 next year there will have been a 64% rise in rental costs in a decade, more than three times faster than the surge in energy prices.
Most of the rises in rental costs have occurred in the last two years, owing to rising interest rates and higher inflation.
Based on these projections, average annual energy bills will fall to account for 80% of rent by Q1 2025.
Slowing rental growth
The average pace of rental growth has slowed, Hamptons said, with a 6.7% rise in the price of a newly let property in March.
This is nearly half the 12% peak of annual growth seen in August.
In March, the average cost of a newly let home in the West Midlands passed £1,000 per month for the first time. It was also the first region outside of the South of England to have average rents exceeding £1,000 per month.
It is also the only region where rents are still growing at a double-digit pace, with a 10.1% annual increase in March.
Inner London saw the lowest rate of growth at 0.4%, with average rents at £3,060. Hamptons said this was the slowest rate of growth in Britain.
Beveridge added: “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,” she added.
