TSLE: Green mortgages and upcoming EPC legislation a ‘minefield’ for brokers – Simpson

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  • 03/02/2022
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TSLE: Green mortgages and upcoming EPC legislation a ‘minefield’ for brokers – Simpson
A lack of clarity on upcoming legislation on energy performance certifications (EPC) for buy-to-let (BTL) properties and a scarcity of green mortgages has created a confusing landscape for brokers.

Speaking on a panel at The Specialist Lending Event in Solihull yesterday, Jane Simpson, managing director at TBMC, said: “I think that it probably feels like a bit of a minefield for brokers, they’re trying to help their landlords. There is not enough clarity from the government and there are not enough products out there.

“For brokers, I think what they really need to do is to try and keep an eye out for the government legislation and what comes up, so they know what’s coming down the pipeline. Look at what green mortgages out there, although the sourcing systems aren’t great at sourcing them at the moment, so use a specialist or do your research.”

She added that it was important to research EPC ratings and various APIs could be used to see what the rating could be and how much it could cost customers to improve their ratings.

The current draft of the Minimum Energy Performance of Buildings Bill says new tenancies have to be EPC rated C or higher by 2025 and for existing tenancies by 2028.

The bill has passed its first reading in the House of Lords and is now on its second reading. In order to become law, it has to pass the House of Lords then the, House of Commons, go through a final stage and then gets given royal assent and made into law.

It was last updated in July last year.

Simpson said it was estimated that there were millions of homes in the UK which could not get up to a C rating, and it was unknown at this point how many were in the private rented sector.

She said: “That is still a huge amount of properties that just can’t get there, so I think we’ve got the danger that properties become unlettable and potentially down valued as well, which in turn might push some landlords out of the sector.”

Simpson said looking at statistics across the UK there would be areas that would find it more difficult than others to improve the EPC rating of their housing stock, meaning there could be some areas that see a “mass exit” from the rental sector.

She added: “I think there are a lot of unintended consequences that could come out of it if we don’t plan together as an industry and try and help landlords to navigate this.”

Elise Coole, managing director, Keystone Property Finance, added that lenders were keen to offer more green mortgage products and but they “need a little bit more clarity from the government to then be able to really push forward”.

Product innovation and education

Simpson said the green mortgages currently on the market were for those who already had an energy performance certificate between A and C, and a discount would be given.

She added: “I think what we need to see, and I think what is going to happen – there are some talks with some lenders that are going on in the background – we will start to see more innovative products coming out. So, products for those people and those landlords that need to get their property from a D or an E up to a C.”

Coole added that probably by the end of 2023 lenders may start reporting an energy score in addition to an energy rating.

She explained: “Somebody who’s currently a D could be two points off a C rating and that change could come from putting in low energy light bulbs, which is less costly, but that improvement could get them up to the C rating.

“There are others that might need to make costly improvements but I think that transition to energy score will give people a bit more clarity on what improvements they can make and how easy it is for them to move up.”

Coole said that Keystone Property Finance asks brokers to input EPC ratings of properties and the firm uses an API with Corelogic, which extracts data from the government’s EPC database, allowing them to look at the current rating, what it could be and cost of improvements.

She added that at Keystone is also considering sending some of its employees to do the EPC course so they can have a better understanding of what each rating means and what changes could be made to improve tiers.

She said: “For us, it is that educational piece that we can provide that data. Unfortunately, the government database API is free, but that’s not been updated since September 2020. So that’s not very helpful.

“We think it’s an opportunity for us to be obtaining the data and then sharing that back to the brokers to help them.”

Simpson said the average landlord had two to four properties, but some had bigger portfolios, and this could be an opportunity for the specialist lending market.

She said it was crucial to sit down with landlord clients and evaluate their whole portfolio to see which properties could be improved or if they wanted to add to their portfolio.

She said releasing equity through remortgage, using a second charge mortgage or bridging could be methods to help landlords improve their properties.

She said: “That’s a great business opportunity because that’s not just one mortgage it’s potentially multiple mortgages, but at the same time, you’re actually really helping someone to understand their business.

“You will become a business partner as opposed to just a mortgage adviser. I think there’s a huge amount of opportunity for someone if you can get comfortable with it and find yourself new landlord customers and have those conversations to help them get to where they want to be.”

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