3 minute read
Jane Simpson
Jane Simpson
MD, The Business Mortgage Company
Despite the uncertainty around proposed changes to EPC regulations, the inevitable shift toward greener homes presents opportunities for brokers.
Anyone who follows the mortgage press will undoubtably be aware that as part of the government’s drive toward its net-zero 2050 target, changes have been proposed that will require all homes rented under new tenancy agreements to achieve EPC (Energy Performance Certificate) C or above by 2025; all privately rented properties will need to meet the standard by 2028.
With the private rented sector (PRS) consisting of millions of households, meeting the proposed regulations will require a huge effort from the sector, something that presents opportunities for brokers.
We’ve seen many lenders introduce mortgage products that offer favourable rates for those investing in properties that are rated above EPC C. While I know that some have seen this as a bit of a green gimmick, there is data to suggest that mortgages have played a part in increasing the energy efficiency of PRS homes. As the sector has grown at an increasing rate as buy-to-let mortgage lending has become more commonplace, so has the proportion of homes with EPC ratings of C and above, rising from 13.5 per cent in 2009 to 38.3 per cent in 2019.
Add to this the fact that a recent survey of landlords showed that of those who intend to buy property in the next 12 months, more than six in 10 will target properties rated EPC A, B, or C, and we can see that there is a market for green mortgage products.
We’re also seeing more examples of investors using bridging to purchase properties that can be acquired below market value due to their lower EPC ratings. Once necessary upgrades have been completed, increasing these properties’ value, landlords will be able to take advantage of the lower rates available through green buy-to-let mortgages.
With data from the Department for Business, Energy, & Industrial Strategy showing that domestic energy consumption is responsible for around 16 per cent of the UK’s total carbon emissions, it is likely that all homes will need to become more energy efficient at some point – indeed, it’s more a question of when than if.
Record-high energy costs mean that there has never been a better time to make properties more energy efficient, as this can reduce monthly outgoings – particularly important for landlords who include utilities in their monthly rental costs.
Research undertaken as part of the English Housing Survey found that privately rented homes upgraded to Energy Efficiency Rating (EER) C could offer an average saving of £276 per year on fuel bills. Although published in July 2022, this report covers 2020–2021, so it’s likely that this saving is now noticeably higher and would be more evident in multi-occupant properties like HMOs.
The profile of PRS stock, almost a third of which was built before 1919, means that large numbers of homes will require a raft of energy-saving upgrades to hit EPC C. It is estimated that measures such as switching to greener heating systems and adding insulation will cost in excess of £10,000 per property in many cases.
To fund such works in situations in which clients are already locked into a mortgage, second charges can be used, providing the first-charge lender will accept a second. It’s worth considering that the second charge does not necessarily need to be on the property requiring upgrades. We have seen CHL launch a new refurbishment product that, whilst not labelled as a green product, is certainly one that brokers should be looking at.
This is just one example, and my expectation is that once we receive clear direction from government, lenders will be in a better position to develop innovative products to support landlords in meeting any new regulations. In the meantime, there are options out there, so brokers should see the issue as a chance to support clients and generate business.
