With inflation making headlines for the first time in decades and interest rates rising despite the spread of Omicron, fixed and variable rates remain at the forefront for many mortgage advisers, and what interest rate rises will mean for clients.
Meanwhile, and perhaps under the radar for many, the issue of Energy Performance Certificate (EPC) ratings for properties has the potential to be a ticking timebomb for owners, first-time buyers (FTBs) and buy-to-let (BTL) landlords.
The transition to a more sustainable world is of course clearly welcome. But in the current inflationary landscape, and with the energy crisis swelling, it is becoming increasingly important for mortgage advisers to discuss EPC ratings with clients to better promote long-term financial peace of mind.
The energy squeeze
The double shock of Brexit and the pandemic on supply chains continues to cause shortages. This is now moving beyond supermarket shelves and knocking on the doors of millions of homes, with energy provider numbers plummeting and supply and demand forcing bills to climb.
Offering hope is the government’s £5,000 grant for heat pumps to spearhead the transition away from gas boilers. Estimates have suggested replacing a G-rated gas boiler with an air source heat pump could reduce heating bills by up to £375 a year.
However, not everyone will be able to afford the remaining cost beyond the grant, whilst such savings won’t be as high for all. Meanwhile, energy prices continue to rise, further eating into savings. Such factors are likely to have significant consequences in terms of financial wellbeing.
EPCs
Despite this, many property owners remain unaware of their EPC ratings, with consequences varying from simply missing out on reduced household bills to falling property values and even forced sales. As is often the way, it is likely FTBs will be left picking up the tab.
By 2025, it will be a legal requirement for landlords’ properties to hold an EPC rating of at least ‘C’; two steps higher than its current ‘E’ rating. The cost of making such required improvements could run into the thousands, which again not everyone can shoulder. Compounding the issue is the fact such a rating may be impossible for buildings such as Victorian terraces, potentially forcing landlords to dump properties.
Likewise, as the net-zero journey gains pace, selling properties with sub-optimal ratings could become more difficult, even leading to a situation in which owners and first-time buyers can’t secure competitive mortgage deals and property values degrade.
What can advisers do?
Advisers need to place more emphasis on EPC ratings at the point of sale, enabling them to stay ahead of changing requirements and better serve clients. It is important to remember that bricks and mortar matter just as much as ISAs, SIPPs, and IHT when it comes to financial planning, with mortgages and associated bills often the single biggest outgoing for many.
EPCs therefore must become a cornerstone of the mortgage advice process, with advisers educating clients on the benefits of EPC improvements, as well as any potential traps laying ahead. The importance of whole-of-market brokers is also likely to increase as a result, given their position to quickly recognise nuances in customer circumstances.
‘Green’ mortgages will also play a role, having the potential to cut costs and incentivise home improvements. At the same time, if BTL landlords begin selling off inefficient homes, it’s likely that FTBs will be there to pick up the remnants. However, this may be at a premium if a property doesn’t qualify for green mortgages; impacting financial bottom lines and causing FTBs, often already facing affordability hurdles, to pay even more. It is important that mortgage advisers consider such issues when speaking to clients.
The importance of good financial advice
Advisers need to remain up to date with the latest grants available, not only to save clients’ money, but also to reduce confusion and ensure grants and clients are appropriately matched. Such confusion was seen with the government’s recent Green Homes Grant, which came under fire earlier this year for failing to help low-income homes with property improvements at large scale. As the government’s ‘green upgrade’ continues to change, the need for advisers to stay up to date is becoming vital.
Such issues and continued uncertainty clearly highlight the importance of sound financial planning. And with this, mortgage advisers will play a growing role in helping clients build breathing space into their finances and ensure investment risks and time horizons remain appropriate.
Simon Broadley, managing director, Tenet Mortgage Solutions
