Landlords are buying greener properties ahead of government moves to legislate in this area, meaning that tenants may pay lower utility bills than owner occupiers, saving up to £844m a year, says Hamptons.
The estate agent says so far this year, the share of homes bought by investors with an energy performance certificate rating of A to C is running at 50%, the highest figure on record, up from 39% in 2021 and 33% in 2020.
This comes ahead of government proposals, yet to be brought into law, to enforce a compulsory EPC rating of C on new tenancies by December 2025, and on all rented properties by December 2028.
The estate agent’s January Monthly Lettings Index says this shift by landlords has been driven by two factors.
It says: “Firstly, landlords have bought more energy-efficient homes where improvement works have already been done.
“Secondly, there has been a shift towards investors purchasing newer homes, particularly flats, built within the last decade. These properties typically carry much better EPC ratings, with almost all awarded a B or C ranking.”
Hamptons says the move by investors to buy new-build flats means London’s landlords tend to buy the most energy-efficient buy-to-lets anywhere in England and Wales.
In the capital, two-thirds of new purchases made this year already have an EPC rating of C or above.
While further north, investors are more likely to buy higher yielding but older and less energy efficient terraced housing stock. Just 34% of investors in the North East bought a BTL property with an EPC rating of C or above.
The push for higher EPC ratings will save tenants money, the estate agent says.
It says the average tenant moving from a home rated D up to one rated C will save an average of £285 per year on their gas, electricity and water bill at current prices.
A tenant moving from a home rated E to one rated C will save £725 annually. While most homes with an F or G rating can no longer be let, the savings from an upgrade to C stand at £1,348 and £2,404 respectively.
The firm says: “If all privately rented homes with an existing EPC rating of D to G were upgraded to at least a C, it would save tenants in England £844m in utility bills each year, or £396 per household. These improvements would leave the average privately rented household paying £326 less in utility bills than the average owner-occupier.”
On rental growth, the estate agent says that yields have continued to cool after hitting record highs over the summer months.
January 2022 saw average rents rise 7% across the UK compared to the same time last year, with the rate of growth falling in all but one month since a peak of 8.7% was recorded in July 2021.
The moderation in growth has been underpinned by slowing rental rises across northern England, which has in part been offset by faster growth across London in recent months.
After 21 consecutive months, January saw rents in inner London return to pre-Covid levels. Rents rose by a record 17.3% annually in inner London to average £2,546 per calendar month – identical to the March 2020 figure and 29.6% above the mid-Covid low of £1,964.
Meanwhile, in outer London, where rents now stand 9.9% above their pre-pandemic peak, average rents rose 4% year-on-year to hit £1,851 per calendar month.
Hamptons head of research Aneisha Beveridge says: “By removing the least energy-efficient rental homes from the market, government policy has already picked the lowest hanging fruit.
“But extending this plan to upgrade homes with a D or E rating up to C will impact a far larger number of households, while generating smaller savings for tenants.
“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.
“Given 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.
“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.
“The recovery in inner London rents back to where they were on the eve of the pandemic marks a milestone for London’s landlords.
“With inner London recording the largest ever month-on-month increase between December and January, it appears the recovery in rents still has plenty of steam.
“The level of pent-up demand coupled with a lack of stock is likely to support high rates of rental growth over the coming months.”
