UK households brace for £1,723 energy bills as mortgage rates cool housing market

Energy bills surge as government resists fresh support

British households woke up to higher energy costs on Thursday, with the annual bill for a typical home rising 4% to £1,723—a three-year high. The increase, driven by global energy market pressures and a weaker pound, comes as Chancellor Rachel Healey faces mounting calls to intervene in next month’s budget. In her speech at Labour’s party conference this week, Healey emphasised fiscal discipline, warning that the government’s ability to cushion economic shocks was limited. "We will not spend what we do not have," she said, though she left the door open for targeted measures.

The timing of the price rise has sharpened the debate over household finances. According to the Resolution Foundation, the average family will spend £276 more on energy this year than in 2025, even as wages grow at their fastest pace in two years. The think tank’s analysis suggests that lower-income households will be hardest hit, with energy costs consuming up to 12% of disposable income in some regions. Meanwhile, the government’s Warm Home Discount—a £150 annual credit for vulnerable households—remains unchanged, despite calls from charities to double the amount.

One family in Milton Keynes has found a way to avoid the hike entirely. Clare Naylor’s four-bedroom home, retrofitted with solar panels, a battery storage system, and a heat pump, now operates as a "zero-bills" property. "Last winter, we were filling hot-water bottles and layering up to stay warm," Naylor told The Guardian. "This year, we won’t even see a bill." Her setup, which cost £25,000 upfront but is expected to pay for itself within a decade, highlights the growing divide between those who can afford to invest in energy independence and those who cannot. The government’s Green Homes Grant, which offered vouchers for insulation and low-carbon heating, was scrapped in 2021 after low uptake, leaving many households without alternatives.

Mortgage rates slow house price growth to 2.1%

The UK housing market is showing signs of cooling, with annual house price growth halving to 2.1% in September, according to Nationwide. The lender’s data, released on Thursday, also showed a 0.2% month-on-month decline in prices—the first drop since January. The slowdown comes as mortgage rates remain elevated, with the average two-year fixed-rate deal now at 5.99%, up from 4.74% a year ago.

Economists attribute the shift to a combination of factors: higher borrowing costs, economic uncertainty, and geopolitical tensions pushing up energy prices. "The market is caught between two forces," said Robert Gardner, Nationwide’s chief economist. "On one hand, wages are rising and unemployment is low, which supports demand. On the other, mortgage rates are still high, and the cost of living is squeezing budgets." The Bank of England’s decision to hold interest rates at 5.25% last month—after 14 consecutive hikes—has done little to ease the pressure on borrowers.

The impact is uneven across the country. In London and the South East, where prices are highest, growth has stalled, with some areas seeing modest declines. In contrast, the North West and Yorkshire have recorded stronger gains, driven by more affordable prices and higher demand. The regional divide reflects broader economic trends, with the South more exposed to financial sector volatility and the North benefiting from public sector investment.

For first-time buyers, the market remains challenging. The average deposit for a home now stands at £53,000—nearly double the pre-pandemic level—while mortgage approvals have fallen to their lowest level in six months. "The dream of homeownership feels further away than ever," said Sarah Coles, head of personal finance at Hargreaves Lansdown. "Even with wage growth, saving for a deposit is a struggle, and higher mortgage rates mean many are priced out."

Fuel prices and the cost-of-living squeeze

While energy bills dominate headlines, rising fuel prices are adding to the financial strain on households. In the South of England, drivers are reporting record costs at the pump, with unleaded petrol averaging £1.52 per litre—up 8p since August. The increase, driven by a combination of higher oil prices and a weaker pound, has left many questioning how to cut costs. "People are asking, ‘What can we do?’" said a spokesperson for the RAC. "Some are switching to public transport, others are carpooling, but for many, there’s no easy alternative."

In Redditch, residents say they are still struggling to heat their homes despite spending £300 a month on energy. "We’re still cold," one local told the BBC. "The bills keep going up, but our wages don’t." The sentiment echoes concerns raised by the Joseph Rowntree Foundation, which warned this week that 4.2 million households are now in "severe fuel poverty"—spending more than 10% of their income on energy. The charity called for an emergency fund to help those most at risk, but the government has yet to respond.

The cost-of-living crisis is also reshaping spending habits. Supermarkets report a surge in demand for own-brand products, with sales of budget ranges up 15% year-on-year. Meanwhile, discretionary spending is falling, with restaurants, cinemas, and non-essential retailers all reporting declines. "People are cutting back where they can," said Helen Dickinson, chief executive of the British Retail Consortium. "But for many, there’s nothing left to cut."

What to watch

• Chancellor’s budget (October 22): Will Healey introduce targeted support for energy bills, or double down on fiscal restraint?
• Bank of England’s next move: Markets are pricing in a 25-basis-point rate cut by December, but inflation remains above target.
• Housing market data: October’s figures will reveal whether the slowdown is deepening or stabilising.
• Fuel price trends: Oil markets remain volatile, with tensions in the Middle East adding upward pressure.

The coming weeks will test the government’s balancing act: supporting households without derailing its economic plans. For now, the message is clear—Britain’s cost-of-living crisis is far from over.