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The U-turn on net zero should not halt industry progress – Hendry

by: Grant Hendry, director of sales at Foundation Home Loans
  • 13/10/2023
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The U-turn on net zero should not halt industry progress – Hendry
This is the second time I’ve written this article. That’s because the first time I wrote it, I had very little idea of what the future might be in terms of government intervention on moving the minimum EPC level within the private rental sector (PRS) to C from either 2025 for new tenancies or 2028 for existing ones. 

Indeed, even with the recent news from the government that this would not be a requirement for landlords in the short term – certainly for landlords in England and Wales – part of me still feels somewhat unclear on what might actually happen next.  

After all, we are probably a year away from a General Election and it’s likely that a change in government will put this back on the agenda. In fact, for landlords and stakeholders in Scotland, it’s not off the agenda anyway as it seems the Scottish government is sticking to the 2025/2028 deadline.  

What also, to my mind, makes this decision, if not surprising, then certainly odd in terms of its timing, is the amount of energy, resource, commentary, focus, etc, there has been on all things EPC for landlords – certainly over the last few years.  

  

Undeniable efforts

Since the government made their first announcement of its green agenda, we as lenders have worked incredibly hard to promote and educate advisers and landlords on what is coming around the corner. We also helped them understand the benefits of making home improvements, adding value to the property, making the homes cheaper to run for tenants and in turn ensuring demand remains high and properties spend less time being vacant.  

The fear with the deadline was the impact of non-compliant housing stock being offloaded out of the PRS, so this change will give landlords and tenants some comfort.  

But as an industry, we should not turn our back on the green agenda. I feel we need to keep innovating, working with housing ministers and building developers to come up with solutions to help more landlords make the required improvements to make each home as energy efficient as possible.  

 

Still a worthwhile goal 

To my mind, those benefits have not gone away, not just in terms of the access to green mortgages that landlords with an EPC of C and above could get – and the rate reductions these typically provide – but also in terms of suitability for tenants who would clearly like to live in more energy-efficient properties.  

One might suggest that demand for more energy-efficient PRS properties is only going to grow. While landlords have clearly had to deal with a significant increase in costs in recent years, by spending the money to improve now, they had the opportunity to recoup those costs over the longer term. 

And, of course, as our recent landlord research, conducted on Foundation’s behalf by BVA BDRC, shows we have seen a shift in terms of what is acceptable to landlords themselves when purchasing a property. Demand has understandably grown for those properties which are already at a Level C or above.  

According to the research, over seven in 10 (71 per cent) of those surveyed said they would be unlikely to purchase a property with an EPC less than C. And, the more properties a landlord holds the less likely they are to buy a property below C, possibly because they understand the cost that improving the EPC might require and how that might pressure their existing portfolio.  

Plus, as mentioned, the awareness of what we believed the government was going to introduce had grown significantly. Some 95 per cent of all those landlords surveyed said they were aware of the EPC requirements – at least what they were likely to be – and they were reviewing the levels of their current properties with a view to moving them up if they happened to be D and below at the moment. 

 

No time for apathy 

Now one might believe that some landlords might not go ahead with this assessment or this improvement now, and to my mind, that would be a real shame. 

However, and this is certainly worth considering, this state of affairs might well be short-lived. It seems inconceivable that a change in government won’t put this back on the agenda, with the expectation that the Labour Party will not want to row back on net zero commitments as the Conservatives have said they wish to.   

To that end, I don’t believe this should be put to one side by either landlords or their advisers. In a market environment where every penny counts in terms of ongoing mortgage costs, plus the ability to secure the maximum amount of monthly rental income, being able to offer your clients a green alternative at a lower rate could be of great benefit.  

You might even want to issue a communication to all landlord clients on what has happened, but stress how it is unlikely to be the end of this issue. Plus, if you can contact them, highlight the existing EPC and what might be on offer if they improve it, then they will be in the know that green mortgages are not going away and they can still be accessed. This is particularly pertinent for those coming up to renewal.  

It shows you have an understanding of clients’ portfolios, where they sit with their current finance needs, and how you can provide a solution which could save them money. Advisers still have an opportunity to help their landlord clients in this area, to show them the value of advice and to ensure they stay invested and keep their property fully tenanted for the future.  

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