Jo Breeden, managing director of Crystal Specialist Finance, writes:
In his recent speech, the Prime Minister scrapped the proposed changes to EPC legislation, whereby rental properties would have required an EPC rating of C or above, up from the current standard of E, by 2025 (for new tenancies) and 2028 for all rental properties.
While welcome news for some, the Government’s U-turn on introducing new energy efficiency regulations will have frustrated landlord clients who were already preparing for, or indeed had already upgraded their properties.
That said, it can only be in landlords’ best interests to ensure that their properties are energy efficient for a number of reasons.
Firstly, the energy crisis has made us all more aware of the cost of heating our homes. Tenants are no different. Third party estimates suggest it costs £721 more a year to heat an E rated home than a C. To attract quality tenants and avoid potential voids, it makes sense to invest in energy efficiency.
Secondly, we don’t know how long this legislation U turn will be in place for. With a General Election on the horizon, energy efficiency could be back on the political agenda sooner rather than later. Costs are only going up and so it makes financial sense to upgrade properties now.
Thirdly, if landlord clients are looking to sell a property in their portfolio, the more energy efficient it is, the more attractive it will be to a potential buyer.
Fourthly, lenders are acutely aware of the green agenda, and some are already offering more keenly priced products for energy efficient homes. This trend will only continue as the focus on energy efficiency gathers momentum. Allied to this, some lenders are also offering better pricing (and even some with interest free elements) if the reason for the borrowing is solely to improve the energy efficiency of a property.
And lastly, it’s simply the right thing to do! Wasting energy only contributes to the climate crisis and we should all be doing our bit to reduce the energy we consume.
So, it makes sense for landlords to continue improving the ‘EPC’ rating of their portfolio. As a mortgage adviser, are you still having these discussions?
There are several ways that you can advise on how to fund the upgrades.
For example, did you know that you could use a second charge on an existing buy to let mortgage to raise capital without disturbing a low rate, fixed term deal that is currently in place?
Or particularly in the current interest rate environment, bridging finance is a becoming an increasingly popular funding mechanism for landlords. And did you know that second charge bridging is also available? Again, not disturbing a low rate with some time to run.
The drive to improve energy efficiency in rental property hasn’t gone away, it has simply been parked for now. Landlords who are ignoring it are only going to be looking at additional expense when it comes back on the agenda.
If they are looking at mortgage finance to fund the improvements, then again now is as good a time as any to act. With base rate at 5.25%, a likely to rise to 5.75% across 2024 and then a fall to around 4% over the next 5 years, rates are not going to fall anytime soon, and delaying finance isn’t going to be to landlord’s advantage.
With Winter around the corner, now is the time to act to improve the quality of property portfolios, retain quality tenants and do your bit for the planet.