According to a government report1, the housing in the UK is among the oldest and least energy-efficient in Western Europe. The report states that around 19 million homes in the UK lack energy efficiency, and there are several reasons for this. Firstly, a large proportion of homes in the UK use gas boilers for heating, which contribute to greenhouse gas emissions. Secondly, the UK has a high proportion of old buildings that were constructed before energy efficiency standards were introduced. More than 52% of homes in England were built before 1965 and nearly 20% were built before 1919. Lastly, the UK has a low rate of insulation for its homes, which results in more heat loss and more energy needed to maintain a comfortable temperature.
It has been estimated by the Committee on Climate Change that to achieve the net zero target, a massive £250 billion must be invested in UK home upgrades by the year 2050. The UK government has implemented several measures to accelerate progress towards meeting this daunting target, including a renewed focus on the private rental sector (PRS). Specifically, the government has proposed that all newly rented PRS properties in England and Wales must have an EPC rating of C or higher by April 2025. This challenge will require collaboration and dedication from all parties involved in the industry.
One of the main obstacles is that landlords are expected to pay for the required upgrades, often at a substantial cost. A recent survey indicates that 44% of landlords see the cost of energy efficiency improvements, such as double glazing, insulation, heat pumps, and boilers, as a significant barrier to upgrading their rental properties2. These upgrades typically cost in the region of £6,000 to £15,000, but sometimes more. Whilst the landlords are the people ultimately responsible for improving their PRS properties, it is absolutely in the interests of lenders and brokers to support them to do so.
Over the course of the past eighteen months the choice of a green mortgage has increased considerably as many lenders have risen to the challenge and have developed various green mortgages to help the landlords meet EPC legislation .
At CHL Mortgages we are committed to assisting landlords to enhance rental stock. As part of this we introduced the Refurbishment range which comprises EPC Improvement, Cosmetic Improvement, and Light Refurbishment product options. The aim is to enable landlords to improve their properties with the assurance of being able to recover the cost of refurbishment by releasing capital against the uplifted value – all within the same mortgage product.
This approach puts landlords in charge of their property improvement plans, minimising the administrative and cost burdens of multiple loans, whilst maximising borrowing against increased value. Since launch, many landlords have utilised our Refurbishment products, often making energy efficiency improvements to their properties, such as replacing old windows and doors, improving insulation and replacing boilers and central heating systems, all changes which collectively improve the EPC rating. On average, landlords using our Refurbishment products have spent £24,587 on improvements (12% of pre-works value), resulting in an average increase of £58,000 (22% of pre-works value) in post-works value, so there are real financial benefits associated with these products too.
A landlord’s motivation is to increase the asset and rent value, generate a profit and obtain a return on their investment. With the proposed EPC legislation landlords face a challenge to finance required improvements whilst maintaining rental yields. One way they may look to do this is by passing the cost on to the tenant through a rent increase, though many landlords have adopted more creative solutions to the problem by extending properties, adding rooms, converting rooms and sub-dividing into smaller units.
In certain instances, landlords are looking to purchase new build affordable housing instead, which could make it more difficult for first time buyers to purchase homes of this type and to instead settle for older, less energy efficient properties. This is a debate for another day.
To their great credit, most landlords are driving up the standards of privately rented accommodation for tenants. According to a recent study, it was discovered that most landlords, around 81%3, make improvements to every property that they acquire for their portfolio. This kind of proactive approach can lead to lower energy costs and better living conditions for tenants. Additionally, it’s been observed that improved housing standards have a positive impact on the wider community by increasing the value of surrounding properties and the area.
In order to be compliant, landlords must contend with many challenges, not least that of funding the necessary energy efficiency upgrades; but they can’t do it alone. In this changing landscape there is one constant: the broker. Their specialist knowledge, connections and experience, will play a crucial role in helping landlords to find and access the means to improve their property and will further enhance the PRS for them and their tenants
1. Gov.uk
2. Shawbrook “confronting the EPC challenges.
3. Paragon Bank Study
Top 10 considerations for landlords purchasing their first HMO or MUFB