The ‘green agenda’ is one that has inched its way further into the mortgage market over the past year or so, and we suspect it will be given added impetus by the chancellor’s decision to reduce VAT from five per cent to zero on various energy-saving measures such as solar panels, heat pumps and roof insulation.
The idea of course is to give homeowners – landlords as well as owner-occupiers – a further incentive to improve the energy-efficiency of their properties, to move the dial on their current EPC level, and from a wider perspective, to put more emphasis on sustainable energy sources.
Of course, for landlords we know they are likely to be looking at VAT reductions in terms of the EPC deadlines they have to meet for their properties. It may still be int he consultation stage, but few of us expect any change to the proposals which would see all new tenanted properties having to be EPC level C or above by the end of 2025, and all existing tenancies at the same level by the end of 2028.
That appears to be set in stone, and it has been a positive of the last six to 12 months that we have seen a growing number of buy-to-let lenders, including ourselves, bringing out a range of ‘green’ mortgage products that help landlords move towards meeting these requirements.
The private rental sector needs to get on top of it
What we do need to recognise, of course, is the wider scope of the private rental sector (PRS) in this.
The PRS is not simply made up of two-up, two-down properties rented out by one family unit; we have houses in multiple occupation (HMOs), multi-unit blocks, short-term and holiday lets, and the like, and there is a requirement here to ensure we have these properties as energy-efficient as others.
This, I think, will be a particular issue for HMO landlords going forward, especially given that many include utility bills within the weekly rental charge.
Not only will they need their properties to be at EPC level C and above so they can meet their responsibilities and requirements, but their tenants will be keen to ensure they are not paying huge sums in rent in order to accommodate the bills generated by a property which is not energy-efficient. Add in the current rising costs for utility bills and you can see why HMO landlords will want to get on top of this.
Overall, it’s vitally important that we as a mortgage community highlight the issues and the benefits here. A VAT cut of five per cent on its own might not seem like a particularly impressive incentive, however for those landlords who, for example, may need to move their properties up to level C from D – which could cost in the region of £1,000 and £5,000 – that’s a saving of £250.
Add in the ability to secure ‘green’ buy-to-let mortgages, a reduced product fee of just 0.75 per cent, and a highly-competitive rate, and you can certainly make the case for landlords accessing all these incentives in order to carry out the work now, and future-proof their properties for what is coming over the horizon.
Plus, fundamentally, a ‘green(er)’ property is better for both landlord owners and their tenants, especially in an environment where we are unsure what energy costs might do in the future, and of course, the property market certainly needs to lead the way and perhaps do more than its share, given the nature of what our homes emit.
