EPC are three letters which continue to generate a number of column inches in the trade and the national press as the discussion around energy efficiency widens.
Within the mortgage market, there is a growing spotlight on the environmental impact of properties but how this fits from a lending and borrowing perspective is a complex area.
It’s fair to say that lenders have become increasingly concerned with mortgage origination and their back book in relation to EPC ratings and how this is reflected in the context of valuations remains a key focal point for the sector.
The impact on house prices is another matter to consider. According to recent figures from Nationwide, energy efficiency ratings are currently having a limited impact on house prices, despite the ‘push to go green’.
This analysis suggests that a more energy efficient property rated A or B attracts a modest premium of 1.7% compared to a similar property rated D (the most commonly occurring rating).
There was reported to be little difference for properties rated C or E compared with D. However, there was suggested to be a more noticeable discount for properties rated F or G, the lowest energy efficient ratings, which are typically valued 3.5% lower than a similar D rated property.
It’s not only first-time buyers and existing homeowners who are facing decisions over EPC’s and energy efficiency. Current legislation in England and Wales requires buy-to-let properties to have at least an EPC rating of E or above.
In order to improve the energy efficiency of rental properties, the government wants to increase the requirement to C for all new tenancies by 2025, and for all existing tenancies by 2028.
It has also recently launched a Housing Decarbonisation Fund, with the aim of giving local authorities and housing associations across England the chance to secure a share in a £160m cash injection.
However, according to a recent poll of around 750 landlords by The Mortgage Works (TMW), more than a third (35%) of respondents said they were not confident they will be able to bring their properties up to the required EPC standard.
This is not only due to a lack of available capital, but also a lack of awareness regarding what it takes to achieve a C rating. The biggest issue raised was perceived property constraints, which more than half (51%) of landlords thinking this will be a hurdle, although 10% did not anticipate facing any challenges.
In terms of cost implications, 61% of landlords said they will need to spend money to get their properties up to an EPC C standard. More than one in 10 (14%) outlined that they will need to spend all of their annual rental income, and perhaps even more than that, on making the improvements to their properties.
In sharp contrast, nearly a third (29%) said they will need to spend less than 30% of their annual rental income.
This data helps outline some of the demands, attitudes, awareness and challenges facing a variety of borrowers when it comes to incorporating more energy efficient practices and the subsequent effects on the wider mortgage market. And this is the subject of the next webinar in our ‘Game Changer’ series.
Increased dialogue is vital in helping to generate interest, educate and propel further momentum into the green mortgage market.
The role of property valuations and surveys in improving energy efficiency in homes remains crucial and this is where more conversations between surveyors, lending partners and intermediaries will help formulate better solutions to create a more aligned environmentally-friendly approach across the mortgage market.
All of which will hopefully result in a brighter future for the generations of homeowners to come.
