With the Government’s focus to drive carbon emissions down to net zero by 2050 and to have achieved 76% of this by 2035, all sectors of the UK are under scrutiny to establish ways to reduce their carbon output, and the housing sector is no different.
The housing and construction sector is well known for its large carbon footprint. The residential housing sector alone currently contributes over 20% of the UK’s carbon emissions[1], worsening over the last couple of years due to COVID encouraging an increase in homeworking, which in turn has led to more household heating and gas usage for home cooking.
In addition to more people working from home, it is also widely recognised that the average property in the UK is typically of older construction, with 4.7m of the 15m owner occupied dwellings built before 1919 and only 2.3m built after 2003[2]. As a result, the poor energy efficiency of many properties is a significant contributor towards the carbon emission levels that we currently experience.
The rental sector has historically been an area of the residential sector that has been underserved with quality properties that are energy efficient, as properties could be bought in poorer conditions and at lower prices but still be rented out to generate a return for the landlord. In 2018, the government stipulated that properties that were rented out needed to meet a minimum Energy Performance Certificate (EPC) standard of grade E before it could be rented out which is understandably a benefit of living conditions to the tenants of those properties.
There are plans to take this a step further over the coming years, with draft papers currently written, stating that rental properties must meet a minimum EPC grade of C by April 2025 for all new tenancies taken out and by April 2028 for all existing tenancies. These defined timeframes given are still unofficial at present due to the policy being at draft stage however, give an initial idea of considerations due to be promoted.
The impact of these suggestions when the papers are formally proposed and put into force means landlords of rental properties have potentially got only a few years to make improvements to the properties that they currently own otherwise there could be the risk of them becoming mortgage prisoners of untenantable properties and equally possibly unmortgageable properties.
Estimations have suggested that improving properties EPC grading would be as follows:
- Move from Grade D to Grade C would cost approximately £8680
- Move from Grade E to Grade D would cost approximately £7820
In recent surveys carried out, over 80% of all landlords surveyed feel that making energy efficiency upgrades to their properties goes some way to helping tenants protect themselves against rising costs. Nearly seven in 10 (69 per cent) feel a level of responsibility to help their tenants mitigate the cost-of-living crisis[3] with many of them saying they would pay for these costs from their own savings.
With this in mind, the mortgage industry is beginning to look at ways of combatting this, not only for owner occupiers but also for tenanted properties, with the Buy to Let market taking the lead in incentivising landlords to improve their properties with more lenders offering “green” mortgage incentives.
There has been an increase from 7 lenders to 14 lenders with green mortgage products in the last 12 months and an increase from 95 to 353 products available as a result[4], though with over 50 lenders with products available in the Buy to Let Market, there is still significant room for improvement.
The current green mortgage offerings include:
- Better interest rates for clients buying properties with EPC’s of A or B
- Products including cashbacks for clients whose properties are already in the A or B categories
- Green further advance options, allowing landlords to borrow funds to do home improvements up to £15,000 at significantly cheaper rates of interest than typical further advances.
There are currently over 4m properties in the private rental sector and currently only 40% of these are currently at grades A-C on the EPC standards, so currently 60% of private rented properties currently do not meet the future standards required.
Improving the energy efficiency of a sector that contributes such a significant amount to our carbon emissions, though many unanswered questions still exist:
- How many landlords know that there are mooted changes due to be announced and in such short timeframes?
- Are there enough tradespeople to undertake all the works required?
- What exemptions could be applied if a property cannot be improved to a grade C or better due to its age, construction or grade listing?
- Is an EPC letter grading the fairest way to determine a property’s suitability?
- What will lenders be doing to support those landlords at the time if they still own an property that is below the required standard?
- Will rents increase more due to the properties being in better conditions?
- How can non-carbon emitting energy options such as solar panels and heat pumps become cheaper for more people to adopt?
We will continue to see developments and improvements in the way that lenders assess property energy performance and support homeowners and landlords alike and we hope that there will be answers to many of these questions posed before the draft papers become formalised.
If you are an existing landlord of properties or buying a rental property is something that you are considering, being aware of the changes that are likely to come into effect over the coming years will enable you to make better property decisions and protect yourselves in the long term. For more information or to discuss any enquiries, please get in touch with us at Mortgages | Chase de Vere Dental
Your home may be repossessed if you do not keep up repayments on your mortgage.
The Financial Conduct Authority does not regulate some types of buy to let or commercial mortgages.
[1] Department for Business, Energy & industrial Strategy
[2] www.statista.com
[3] www.mortgagesolutions.co.uk
[4] www.mortgagesforbusiness.co.uk