The rising importance of energy efficiency in the PRS
By Steve Cox, Chief Commercial Officer at Fleet Mortgages
I listened to an episode of Radio 4’s Money Box Live programme about ‘How to buy a home’ recently but it had relevance for the rental sector as well, not least because all the would-be homebuyers interviewed were currently renting, while looking for a first property.
Of course, this is how the vast majority of people move into homeownership; renting first, saving and then being able to get on the property ladder.
Two things struck me from the programme – the obvious importance of the PRS, not least because if people couldn’t rent, then where would they be living? But also something one of the interviewees said about what they were looking for in a property. They immediately pointed to the energy efficiency of the properties they were looking at and identified that the cost of utility bills played a big part in where they might choose to live/buy next.
That seemed a game-changer for me; not least because a few years ago I wonder whether any first-time buyer or indeed tenant would be looking closely at the energy efficiency of a property when deciding whether to live there? I very much doubt it.
Clearly there has been a big shift, most likely as a result of how energy prices have rocketed over the past 18-24 months and the impact this has had on bills. Now that the Government has introduced its minimum EPC standards, this focus on energy efficiency is not going to go away.
By 2030 all private rental sector homes need to be at an EPC Level of C or above, and given we know that the majority of properties don’t currently meet this level, there is going to need to be some ongoing thought to how these improvements are made, and how they are funded.
The good news for many landlords is that their properties might not need a huge amount of work to reach a C level. Part of Fleet’s proposition is our Green ‘cashback’ product feature where we offer £1,000 to landlord borrowers who have improved their property to a C level during the course of the initial fixed rate period and is available on Fleet’s five- and seven-year fixed-rate products.
We’ve had a significant number of borrowers already take advantage of this, and for some an EPC improvement has been achievable with such things as replacing all lights with LED bulbs, increasing loft insulation, installing a room thermostat to control the boiler, updating radiators with smart valves, for example.
Of course, other properties might require more substantial work such as double glazing, replacing boilers and radiators, installing new flooring and wiring. All have been done by Fleet’s landlord borrowers and the cashback has been able to offset some of that cost.
Plus, of course, as mentioned earlier tenants/homeowners are much more actively looking at the energy efficiency a property. We suspect that properties at an A-C EPC level are going to be more in demand and might possibly be offered at a rental premium because of the utility cost savings that can be secured.
For landlord borrowers, there is also another significant cost saving to be made, and that comes in the form of the mortgage finance itself. At Fleet, we have just relaunched our EPC A-C two- and five-year fixed-rate products which come with a price discount compared to our standard mortgages.
It means that landlords who move their properties up to the higher EPC levels, or are already at this point, can secure cheaper finance which, as we know, over the longer-term of a deal can provide a real cost saving, that they simply wouldn’t be able to secure otherwise.
The popularity of this is clearly growing – since our relaunch we’ve seen applications for these products running at about a third of our overall figure, which shows that advisers are now much more aware of the EPC of the property, because they need to be able to recommend these discounted products if the criteria is met.
In that sense, landlord borrowers are clearly going to welcome this product move, and advisers’ ability to facilitate it, plus of course they will also welcome details on how they can fund any works required if their property is not currently at that C and above EPC level.
2030 might seem a long time away but getting this work done now provides a five-six year period of benefits to the landlord, in terms of tenant demand, potential rental increases, and the mortgage cost savings that can be achieved right now and through that period.
It therefore pays for advisers to be communicating this to landlords – with all the responsibilities and extra costs brought to bear on the landlord community in recent years, they are likely to want to know how they can save money and meet their EPC responsibilities at the same time.
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