Financials

Landlords opt for energy-efficient homes ahead of rule changes

Buy-to-let purchasers are this year putting a higher priority on energy efficiency than ever before, with half of investors opting to get ahead of the tighter rules expected on rental properties.

A record 50 per cent of homes bought by investors so far this year have fallen into the top three categories of energy efficiency, up from one-third two years ago, according to research by estate agent Hamptons International.

The sharp rise in appetite for energy-efficient properties reveals the growing impact of government proposals to tackle poorly-insulated buildings, though these plans have yet to be confirmed.

Anyone letting a property must have an energy performance certificate (EPC). These are rated “A” for the most efficient, to “G” for the least. The government is proposing that rented homes should fall into the A-C bracket for new tenancies by 2025 and for all tenancies by 2028.

Line chart of Share of UK landlord purchases with an A-C EPC rating showing Landlords hedge their bets on energy efficiency

The sector is awaiting a government response to a consultation on the matter, which closed in January, though landlords are already barred from letting properties with an F or G rating, with a few exceptions.

Landlords are obliged to make energy efficiency improvements at their own expense. For tenants, the benefits are increasingly valuable: Hamptons estimated that upgrading every rented home to at least an EPC “C” rating would save tenants an annual £844mn on utility bills, or £396 per household.

There are about 2.16mn rented households with an EPC rating of “D” to “G” — equating to about 47 per cent of rented homes, the agent estimated. In total, there are 4.6mn privately rented homes in England & Wales.

Hamptons said there were two factors behind the shift. Landlords have more often been opting for homes where the work involved in raising energy efficiency levels had already been carried out. Second, they were purchasing newer homes, built within the last decade, which in almost all cases carry a “B” or “C” rating.

Aneisha Beveridge, head of research at Hamptons, said the changes were likely to lead landlords to spurn the Victorian housing stock found in cities across England and Wales. “Given that it will prove impossible for all homes to secure an EPC rating of at least a C without significant cost, it’s likely to mean older homes will become considerably less attractive to landlords,” she said.

“Instead, investors may focus their strategy on buying new builds, with rental homes becoming concentrated in blocks or streets where properties already hold a ‘C’ rated EPC certificate or where it’s possible to achieve this without significant work.”

She added: “The policy will mean that the average tenant will eventually pay lower energy bills than the average homeowner, although it’s likely to remove some rental homes from the market, putting further pressure on stock levels.”

One in five landlords did not have the funds to bring their properties into line with the expected requirements, according to separate research this week from Shawbrook Bank. The share was higher — at 25 per cent — for landlords aged over 55.

Some 27 per cent of landlords overall admitted they did not know the EPC rating of their properties — and over one-third (36 per cent) of properties in the private rented sector were built before 1940.

“Should landlords be unable to make changes to their properties by the deadline they may be unable to rent their properties so could be left with properties that are unmortgageable and therefore unsellable,” Shawbrook said.

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