Quarter of landlords plan to avoid properties with low EPC rating – Shawbrook

Quarter of landlords plan to avoid properties with low EPC rating – Shawbrook

A survey of 1,000 landlords conducted by Shawbrook found that 24 per cent would completely bypass low rated homes, while a further 24 per cent will consider energy efficient homes first. 

Government proposals suggest new rental tenancies will need at least an EPC rating of ‘C’ by 2025, while existing properties will need to be renovated and improved to this level by 2028. 

As older homes are less likely to have EPC ratings of C or above, 15 per cent of Shawbrook’s respondents said they will only purchase homes built within the last 20 years.

 

Period homes could become a thing of the past

Shawbrook warned that the new rules could have an impact on the types of properties landlords choose and potentially create an issue for the UK’s housing market. The lender said demand for period homes could dwindle, leaving current owners unable to sell unless they make improvements. 

Landlords predict that EPC-related refurbishments will cost them £5,900 on average. 

The survey also found that 28 per cent of landlords had already received at least one complaint from tenants regarding a property’s EPC rating, while 16 per cent said they had received multiple. 

Respondents said they were more likely to make changes to a property if tenants asked them to, with 61 per cent agreeing with the statement. 

Emma Cox (pictured), managing director of real estate at Shawbrook, said: “It’s concerning to think that a significant proportion of properties, within the private rental sector, could fall out of favour due to poor EPC ratings and significant improvements needing to be made in a short period of time. The market has a responsibility to offer landlords more guidance on what the proposed legislation will mean for them, where to start with improvements, and how to sustainably finance the works.

“Proactive landlords already making changes ahead of the proposed deadline will be in a strong position for the future, constantly one step ahead of the upcoming changes. While our research shows that most landlords are set to commence improvement works within the coming 14 months, making changes sooner rather than later will limit the risk of supply and labour shortages as we edge closer to the proposed 2025 deadline.” 

Shawbrook launches energy efficiency discount for BTL customers

Shawbrook launches energy efficiency discount for BTL customers

 

The lender says that a customer on a £250,000 mortgage could save up to £1,500 on their arrangement fee with this change.

For new mortgages on properties where the EPC rating improves to at least a ‘C’ during the mortgage term, customers can apply for a partial refund of their arrangement fee, plus the cost of the new certificate up to £100.

Those with lower ratings can use Shawbrook’s unregulated bridging products to improve energy efficiency before transitioning to a buy-to-let mortgage and get the discount.

The lender has made the move ahead of current proposals from the UK government, which should require rental properties to have a rating of C or above, starting with all new tenancies from 2025 then all tenancies from 2028.

The median EPC rating for a residential property in England and Wales is currently a D, with properties only required to be above an E to be let.

Research conducted by Shawbrook as part of its Confronting the EPC Challenge whitepaper, earlier in the year, found that close to a quarter, 23 per cent, of landlords said their properties are currently rated D or below for energy efficiency.

In terms of income, landlords believed they could lose up to £9,500 a year in missed rental payments if they are unable to make changes ahead of the 2025 deadline. Landlords are currently expecting the improvements to cost in the region of £5,900 on average.

Emma Cox (pictured), managing director of real estate at Shawbrook, said: “We are committed to helping landlords and to a greener future. This product enhancement incentivises landlords and rewards customers with a high energy efficiency rated property.

“By being proactive, landlords will be in a strong position and one step ahead of the upcoming changes.

“From our research we have been able to understand how significant these policy changes could be for the market. We’ve listened to landlords and brokers to identify what is needed and where we can make a difference. This enhancement is the first in a long line of developments and innovations we will be making to support landlords.”

 

Inability to meet EPC deadlines could hit landlord property disposals – Marketwatch

Inability to meet EPC deadlines could hit landlord property disposals – Marketwatch

 

The most recent draft deadline is set to be extended from 30 April 2025 to 31 December 2025, with a further extension to 2026 expected. However, time is becoming a serious factor for landlords looking to not be penalised as the currently proposed 2025 and 2028 deadlines for existing and new and tenancies loom.

So, this week, Mortgage Solutions is asking: How realistic is it for professional landlords to get their properties up to required A-C EPC ratings within the proposed deadlines?

 

Akhil Mair, managing director at Our Mortgage Broker

There’s a lot of noise about this and market movement from a lender perspective, which is great.

Regarding the implications, it can be detrimental from two perspectives. Firstly, the cost. The costs of double glazing, boilers, loft insulation and lighting is going to be expensive. Can a landlord get a mortgage tomorrow or not? Can they change the properties and is it cost effective? Also how much will it disrupt tenants in situ and affect those relationships?

Second, the borrowing perspective – if they’ve got a low EPC rating and can’t improve it, does that mean the mortgage will seize? I fear that the EPC law could become a mortgage trap like the cladding issues.

In my experience, while they’re all aware of it, a lot of the landlords we work with are taking it lightheartedly as it’s further down the line, so as advisers we make a lot of noise about it. They’ve been asking for the green products as part of our fact finding exercises anyway.

We recommend A-C rated properties, but most of the older properties have an E or an F. Most can be brought up to spec with a light touch like a few bulbs, but it depends on the property itself.

Every disaster has winners and losers depending on how you look at it and how deep your pockets are. Will a cash buyer with a lot of capital be able to get around the rules because they’re buying in cash?

A lot of our clients are feeling it, they’re always improving their property to get a higher rent and longer tenancies anyway, so it’s something that should be on their minds regardless.

Jeremy Duncombe, managing director at Accord Mortgages

Upgrading properties to be more energy efficient is absolutely the right thing for the market to be aiming for, but the sheer logistics alone of doing so means the current deadlines are ambitious.

There’s a huge amount of property that falls outside the required A-C bandings, and the first deadline of 2025 for new tenancies is realistically, not far around the corner. With that in mind it will take a monumental effort for landlords to get their properties up to the required ratings, much of which will be outside their direct control.

We’ve seen the short supply of tradespeople compared to demand with post-pandemic home improvements, and with that, not only comes a time delay to projects, but significant cost too. Whilst lenders can help with funding, getting the required support from the relevant trades to improve such a significant number of homes feels a real challenge, so it may help to consider extending the deadline to help make sure landlords have adequate time to become compliant.

There are other challenges that may lead to unintended consequences.

If some properties are too far down the energy ratings to be improved within the timescales, we may see an increased number of ex-rentals come to the market as investors see selling-up as an option. Equally, we’re already starting to see landlords turning to new-builds to avoid this issue altogether, but that could create wider supply problems for a housing market that is already struggling to build enough homes.

Whatever happens, it’s vital that brokers are aware of the looming dates and are having good quality conversations with landlords to ensure they can make an informed decision.

Howard Reuben, owner of HD Consultants

For the ad hoc, smaller landlord, the costs could most likely be swallowed as a one-off exceptional maintenance investment, however for portfolio landlords who have a large number of properties sitting at a D or E rating, the prospect of increasing to a C could be not only time consuming, but also incredibly costly.

Older properties, for example the Victorian two-up two-down terraced houses which make up a substantial buy-to-let stock, will often need the most energy efficiency upgrades and with a mooted cost of £8,000 per property, which has been discussed in the press. If you multiply that by 4, 10, 50, 100… we can see the financial crisis, and the knock-on effects that this potential new regulation would create.

If the buy-to-let investors do not have the cash with which to upgrade, we could see the market flooded with non-compliant properties where the buy-to-let investors simply roll their eyes for the last time, and give up on what used to be a fairly passive ‘pension’ pot. The layers of costs, works, enhanced regulations and threats of fines for non-compliance has become too much for many people.

We have been encouraging our landlord clients to act now and a lot are already making changes to increase their rating. In turn, this is enabling them to receive market leading rates as the property can be more desirable, and also take advantage of green mortgages which offer a better interest rate for A-C rated properties.

If the proposed legislation is indeed introduced, for those who can’t or won’t upgrade their buy-to-let properties, we could see the landscape for the smaller landlord start to look quite different on the next few years. We fear for the larger landlords who may have hundreds of thousands of pounds to find too, and it is this sector where we could see the largest disposal of buy-to-let assets in to the owner-occupier market.

This is where we fear for those who choose, or need, to rent rather than buy.

Next year will see ‘sharpest rise in mortgage rates since 1990’ – Capital Economics

Next year will see ‘sharpest rise in mortgage rates since 1990’  – Capital Economics

 

The economic research consultancy expects the average rate on new mortgages to rise from 1.8 per cent in Q1 to 3.3 per cent by end of 2022, then to peak at 3.6 per cent in 2023 as lenders rebuild their margins. This is consistent with an abrupt slowdown in house price inflation last seen in 2008.

Andrew Wishart, senior economist at Capital Economics, said: “Lenders have been slow to pass on rising interest rates so far, so we expect a sharp rise in mortgage rates in the months ahead. For example, some banks are offering 60 per cent loan to value (LTV) mortgages at 2.2 per cent, in line with the two-year interest swap rate. If the bank rate was to rise as expected by financial markets, lenders would make no profit on such loans so it is inevitable that rates will rise further.”

The firm correctly predicted the current house price growth back in September, when it said that house prices would rise by five per cent in 2022. The consensus at the time was 1.6 per cent, but prices have already risen four per cent so far this year.

It had previously predicted that the average house price would continue to grow steadily to marginally in excess of £275,000 by 2025, but has now revised this to reflect the newly predicted downturn, pitching the 2025 predicted average at around .

The first signs that the market is turning are already apparent, with Wishart pointing to low visits to property websites and the latest RICS housing survey suggesting that quarterly house price growth will fall to zero by Q3. He added that consumer confidence had also fallen.

However, Capital Economics is not expecting a repeat of the 20 per cent crash in 2008 or 1990.

Wishart explained: “First, while the house price-to-earnings ratio is roughly the same now as in 2007 we do not anticipate a return to pre-financial crisis mortgage rates of six per cent, so the cost of mortgage repayments will remain much less of a burden.

“Second, strong pay growth means a modest fall in prices will be enough to return the house price-to-earnings ratio to a more sustainable level.”

The firm said that due to the impact of the Russia Ukrainian war along with growing post-pandemic and post-Brexit mounting import costs, general inflation has proven more persistent than anticipated. Consumer price index inflation is currently on track to peak at 10 per cent this October, the highest it will have been in 40 years, according to Capital Economics.

The consultancy has subsequently raised its prediction for the peak Bank of England base rate to go from 0.75 per cent now to three per cent in 2023, having previously forecast a two per cent peak in 2023.

This will come off the back of real household disposable income falling by around 3.3 per cent this year. This is in spite of higher wage growth now forecast than anticipated.