“We have discussed this change a lot as it’s one of the main changes in the buy-to-let investment market that UK expat and foreign national buyers need to adjust to,” Stuart Marshall, director at Liquid Expat Mortgages, said.
Marshall said that as flats and newer build homes are much more likely to have a higher EPC rating compared to older, period or “character” properties, investors are left with a difficult decision about which properties to purchase and what to do with their existing properties.
He added that since older properties will be more difficult and expensive to renovate, it is likely that these properties will fall out of favour with both investors and owner-occupiers. For investors, the much more attractive proposition of smaller, more energy efficient properties like flats will likely take precedence while residential homebuyers will be on the lookout for more energy efficient properties to reduce the rising cost of living.
“This will create availability and consequently lower prices for older, less-energy efficient period properties which could prove to be massively profitable for investors that are willing to renovate these properties,” Marshall said. “Of course, the renovation project could prove to be expensive but, in conducting these renovations, UK expat and foreign national mortgage holders are also massively adding to the value of their property by ensuring it remains mortgageable long into the future.”
Read more: Energy efficiency discussion continues to widen.
For investors that don’t want a renovation project, Marshall said that there are still a number of good options available using a UK expat or foreign national buy-to-let mortgage.
“One good way to avoid a renovation project is by buying off-plan. Off-plan properties haven’t been built yet so, since they will be newbuilds when they’re completed, they will have a higher EPC rating. Not only will off-plan properties pass the new EPC guidelines, but they will also give some flexibility to the investor as many off-plan developments allow the investor to pick some of their fixtures and fittings and so tailor their investment to their ideal investor.”
Another way to avoid the renovation project associated with a property that does not meet the new EPC standards is to buy flats.
“Because these properties are smaller and often more modern, they are more likely – or can be more easily adjusted – to meet the requirements for a C EPC rating. This is also a great choice for investment at the minute as the rental market for city centre flats is booming,” Marshall said.
Lastly, investors with a property below the new EPC standards are faced with a choice of whether to sell or renovate their property.
“On the one hand, selling the property will allow investors to adjust to the changing marketplace and invest in new growth areas that are currently available. On the other hand, it could be profitable to remortgage the existing investment property and take out some extra money to conduct green renovations on the property,” Marshall said.
Read more: CSS: 62% of resi professionals say EPCs not suitable.
It was reported that in 2020, 50% of properties bought by investors had an EPC rating of A, B or C.
“In the UK, where the cost of living is soaring, a high EPC rating could well be the deciding factor for a tenant when choosing a rental property as higher EPC ratings will save tenants significant amounts of money,” Marshall said.
“The average tenant would save £285 a year on their gas, electricity and water bill if their property was upgraded from a D to a C, while upgrading a property from an E to a C will save a tenant £725 a year. If all rental properties in the UK were upgraded to a C, the average rental household would pay £326 less in utility bills than the average homeowner – a serious incentive to stay in the rental market compared to homeownership.”
