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Heatwaves, flooding and droughts will be more frequent and more intense, so says a landmark report by United Nations’ (UN) Intergovernmental Panel on Climate Change (IPCC). The report predicts that the worlds temperature will soon be 1.5 degrees warmer due to human influence.
Consequently, landlords, tenants and regulators are becoming increasingly carbon conscious, with government aiming to reduce national net emissions to zero by 2050. Although this is certainly a worthwhile aim, adapting an entire economy and nation to become carbon neutral is no small feat and will invariably lead to significant costs.
The Green Homes Initiative
To create a carbon neutral Britain by 2050, the government will need to encourage environmental efficiencies across all aspects of our current lives, including housing. Robert Jenrick MP, Housing Secretary, has spoken about the need to drive a green housing revolution for both new build and existing properties.
One of the first steps in the governments green home revolution came in April 2018, when they introduced the Minimum Energy Efficiency Standard (MEES). Since April 2020, all private rental properties must meet a minimum energy performance certificate (EPC) rating of E or above. Any property with an EPC rating of F or G must not be let out unless the landlord registers for specific exemptions (typically listed or protected building status). Landlords whose properties do not meet the minimum requirements have a legal responsibility to spend up to £3,500 implementing any changes recommended by an EPC report.
In October 2020, the government launched a consultation outlining its proposals to upgrade as many homes as possible to band C by 2030. Whilst current legislation requires all BTL properties to have an EPC rating of E or higher, the government wants to raise this requirement to a rating of C from 2025.
How Much Will This Cost Landlords?
Being one of the first nations to properly urbanise, the UK suffers from a relatively old housing stock. A significant number of city centre properties date back well over one hundred years, with 75% of the current UK housing stock being built before building regulations even required insulation. It is estimated that over 58% of properties in the UK currently have an EPC of below C. However, geospatial technology company Kamma estimate that the disparity is even greater for private rental sector properties, where 65% are below the target rate.
It is predicted that the governments green homes initiative will cost landlords as much as £21.5bn. This is equivalent to £7,646 per privately rented property, according to data released by the Office of National Statistics today (July 8).
Whilst the average cost per property may be £7,646, many landlords are likely to face costs well in excess of this figure. In its latest Energy Report, the ONS suggested “less than £10,000” was a good deal for landlords and homeowners. However, even this may be an understatement. Mike Reynolds, managing director at Vattenfall Heat UK, estimated last month the average UK house was looking at more like £20,000 in alterations to become more sustainable.
In an effort to support landlords and homeowners, the government launched the Green Homes Grant in September 2020, providing financial assistance of up to £5,000 towards the installation of energy efficiency home improvements. However, this was scrapped in March, less than a year after it launched. The scheme was originally designed to distribute £1.5bn in support to some 600,000 homes. Administration issues and low take up led to only 22,165 grants, worth £94.1m, being awarded.
David Whittaker, chief executive at Keystone Property Finance, highlights the difficult situation that landlords find themselves in at the moment: “On the one hand, the government has told them that every rented property in this country must have an EPC rating of C or above by 2030 at the latest. However, on the other, it has taken away a key source of financial support in the form of the Green Homes Grant.”
“£21.5bn is an enormous amount of money for landlords to find when we are coming out of the worst economic slump in 300 years. Many people wrongly believe that landlords are sitting on endless piles of cash and therefore can absorb these costs easily. That’s not true. Many landlords are on modest incomes and have small portfolios that they maintain as an alternative to a pension”, says Whittaker.
The government risks creating a cohort of landlord mortgage prisoners, who are unable to let their properties or pay off their current mortgages. Without a replacement to the Green Homes Grant, many landlords will be forced to sell-up, further reducing the supply of private rented properties and increasing the already intense upward pressure on rents.
Anna Clare Harper, chief executive of property consultancy SPI Capital, is unsurprised by the estimated £21.5bn, given the makeup of the UK’s housing stock. Like Whittaker, Anna questions how landlords are expected to pay for the necessary improvements: “The trouble is, this is a significant cost for landlords, since average properties make just a few thousand pounds each year at best. It’s likely that significantly more grant funding will be required to avoid the risk that landlords simply sell off their properties.”
Improving Your Properties EPC Rating
The costs and work required to upgrade each individual property will vary considerably, dependent on its size and current EPC rating. In some cases, properties may only need low-cost improvements such as additional hot water cylinder insulation or low energy light bulbs. However, these changes may only improve an EPC rating marginally. Properties with an EPC rating of E or a low D may need their boiler upgrading, new windows or enhanced wall insulation. All of which can be costly works to undertake.
The first port of call for landlords seeking to improve their properties EPC rating should be the property’s most recent EPC report. This will detail the both the property’s current and potential rating, including the recommended improvements.
Disclaimer: This ‘Landlord Vision’ blog post is produced for general guidance only, and professional advice should be sought before any decision is made. Nothing in this post should be construed as the giving of advice. Individual circumstances can vary and therefore no responsibility can be accepted by the contributors or the publisher, Landlord Vision Ltd, for any action taken, or any decision made to refrain from action, by any readers of this post. All rights reserved. No part of this post may be reproduced or transmitted in any form or by any means. To the fullest extent permitted by law, the contributors and Landlord Vision do not accept liability for any direct, indirect, special, consequential or other losses or damages of whatsoever kind arising from using this post.
