In recent years concern has grown over the impact of humans on the environment, especially global warming, which has resulted in nations, industries and individuals trying to reduce their carbon footprint in a variety of ways.

This is a global problem that requires a global solution, but many people are modifying their lifestyle to help fight climate change, such as switching to green energy, reducing meat consumption or minimising international air travel.

In the UK there have also been campaigns to improve the energy efficiency of residential homes, including the Green Homes Grant scheme introduced by the government. This scheme offered vouchers of up to £5,000 to help homeowners make their property more energy efficient. It was also available to buy-to-let (BTL) property owners to assist in making energy efficiency improvements to rental stock. Unfortunately, the scheme was closed to new applications on 31 March this year.

All rental properties require a minimum EPC rating of ‘E’

Landlords are also required to comply with the Minimum Level of Energy Efficiency standard, which has been in place since 2018. This sets a minimum Energy Performance Certificate (EPC) rating of ‘E’ for all rental properties and, since April 2020, failure to meet this may result in fines for non-compliance.

In addition, the Climate Change Committee has made recommendations to the government that all UK homes should have an EPC rating of at least ‘C’ by 2028, so there is mounting pressure to improve the energy efficiency of residential property, including rental accommodation.

Energy efficiency

There are some obvious motivations for landlords to improve energy efficiency and recently some BTL lenders have thrown their own incentives into the mix by offering green BTL mortgages. These products signal support for environmental concerns and are aimed at landlords who can demonstrate improvements in the energy efficiency of their properties.

For example, Foundation Home Loans has a Green Reward remortgage product available to portfolio and non-portfolio landlords who have properties with an EPC rating of ‘C’ or above. The product has been “designed to reward those landlords who have made environmentally friendly choices with their properties by reducing their carbon footprint”, says Foundation. The Green Reward mortgage is competitively priced and comes with a reduced lender fee and cashback.

Brokers are growing in confidence about writing BTL business

Paragon Bank has also entered this niche sector, with green BTL mortgages for properties with an EPC rating of ‘A’ to ‘C’, which are available up to 80% loan-to-value (75 per cent LTV for less energy-efficient properties). There is a green ‘further advance’ product for landlords looking to make energy efficiency improvements to properties with an EPC rating of ‘D’ or below.

Landbay has recently joined the green mortgages space with a range of products aimed at slightly older properties to incentivise and reward energy-efficient rental buildings. These are suitable for standard properties, small houses in multiple occupation (HMOs) and multi-unit blocks that were registered with HM Land Registry at least 24 months ago and have an EPC rating of ‘C’ and above.

Keystone Property Finance joined the green mortgages market in April, offering a 15 basis point reduction on its core range for properties that are five years old or more with an EPC rating of ‘A’ to ‘C’.

This is clearly a growing market in the BTL sector and it is good to see lenders respond to the climate change problem in a positive way, helping to make rental properties more environmentally friendly. It is an area of lending of which brokers should be aware.

Refinance

There could be plenty of opportunities to discuss BTL options with landlord clients this year. Those who opted for a five-year fix when the 2017 Prudential Regulation Authority rules came into force will start looking at refinance options.

Brokers are growing in confidence about writing BTL business. In Paragon Bank’s recent quarterly Financial Adviser Confidence Tracker Index, half of intermediaries expected to write more BTL business during the coming year than in the past year, which is the highest level of confidence found since 2014.

It is good to see lenders respond to the climate change problem in a positive way

The BTL market is in good shape with competitively priced products and a wide choice of specialist lenders for more complex cases, such as HMOs, multi-unit blocks and limited companies. There are also more lenders offering holiday-let mortgages since the coronavirus pandemic affected overseas travel.

As always, the sector has adapted to social, economic and environmental issues by continuing to innovate and provide financial solutions to support the UK’s private rented sector.

Jane Simpson is managing director of TBMC