The government’s announcement to remove gas standing charges, unveiled by Chancellor John Healey in yesterday’s Budget, presents a mixed picture for landlords who include utilities in rental agreements, according to property management specialists.
The impact on landlords will depend on contract types and how any reform is implemented. Many houses in multiple occupation (HMOs) operate on domestic supply arrangements and benefit from Ofgem’s price cap on standard variable tariffs, while domestic fixed tariffs and commercial energy contracts sit outside that protection.
Commercial versus domestic contracts
Property management advisers typically recommend commercial contracts with fixed rates for HMO portfolios, citing cost effectiveness and administrative efficiency. Domestic suppliers’ processes are not always suited to landlords managing portfolios of 20 or more properties, each requiring separate billing and renewal management.
However, landlords on commercial contracts should not assume changes aimed at domestic gas bills will apply to their accounts. For those on affected domestic tariffs, removing the standing charge would not necessarily produce an equivalent reduction in total bills.
Unit rate implications
If standing charge costs are recovered through higher unit rates, properties with lower gas consumption could benefit while those with higher usage could face increased costs. This matters particularly for HMOs where utilities are included in rent, as heating and hot water may serve several residents throughout the day while the landlord carries the cost.
The sector faces broader challenges, with HMRC proposing digital rent reporting for letting agents adding to administrative requirements. Meanwhile, the UK property market continues to show resilience despite ongoing regulatory changes.
If expenditure increases and rental income remains static, the difference reduces the property’s operating margin. Fixed rate contracts provide certainty over agreed rates during their term, but energy consumption still affects final bills.
Future electricity changes
The government indicated in yesterday’s Budget that electricity standing charges could face similar reform next year. A lower fixed charge may benefit some properties considerably, while others may see little benefit or face higher costs.
For HMO landlords, the key question remains whether eventual changes will affect the cost of supplying heated accommodation and whether those costs remain sustainable when utilities are included in rent agreements.
