“The important question is what the eventual changes mean for the cost of supplying warm, comfortable homes”
For landlords who include utilities in the rent, the prospect of removing gas standing charges – as announced yesterday by Chancellor John Healey – sounds welcome. Across several properties, any reduction in running costs deserves attention.
But the impact will depend on how any reform works and which contracts your properties are actually on.
Many HMOs are converted residential properties and may qualify for domestic supply. Where an eligible account is on a standard variable tariff, it benefits from Ofgem’s price cap. Domestic fixed tariffs and commercial energy contracts sit outside that protection.
For many of our HMO clients, we usually recommend commercial contracts with fixed rates, where appropriate to the property and supply arrangements.
That recommendation considers both price and the practicalities of managing a portfolio. In our experience, commercial arrangements can be more cost effective and easier to administer at scale. Domestic suppliers’ processes are not always well suited to landlords managing 20 or more properties, each with its own bills, queries and renewal dates.
But it’s not a universal rule. The correct supply classification needs confirming with the supplier, and commercial contracts need assessing against each property’s consumption and requirements.
Landlords on commercial contracts should therefore not assume a change aimed at domestic gas bills will apply to their accounts – and for those on affected domestic tariffs, removing the standing charge would not necessarily produce an equivalent reduction in the total bill.
If those costs were recovered through higher unit rates, properties using less gas could benefit while those with higher consumption could pay more.
That matters particularly for HMOs where utilities are included in the rent. Heating and hot water may serve several residents throughout the day, while the landlord carries the cost. If expenditure increases and rental income stays the same, the difference comes out of the property’s operating margin.
Fixing rates also does not fix expenditure. A contract can provide certainty over agreed rates during its term, but the amount of energy used still affects the bill.
At TLUG, bringing together bill checks, contract information and monthly property statements helps us put these announcements into context. A headline becomes more useful when we can relate it to the actual accounts and consumption behind a portfolio.
Our view is that standing charge reform should be judged on the complete bill and the final policy details – and the same will apply if the Government move to do the same to electricity standing charges next year, as they suggested in yesterday’s Budget. A lower fixed charge may help some properties considerably, where others may see little benefit or face higher costs.
For HMO landlords, the important question is what the eventual changes mean for the cost of supplying warm, comfortable homes, and whether those costs remain sustainable when utilities are included in the rent.
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