According to recent research conducted by BVA/BDRC on behalf of the National Residential Landlords Association, there has been a severe decline in landlord confidence over the past few months with very few landlords now having confidence in the buy-to-let market.
However, despite their general negative view on the future of the market, landlords are still reporting that demand for rented property is up in most areas of the country.
The research showed that the number of landlords decreasing the size of their property portfolios is increasing, with just under 30% saying that they are intending to sell some of their rented properties.
Increased Government regulation, reduced profitability, and the ‘hassle’ of the upkeep of properties are the main reasons why landlords are selling.
This means that it is a very worrying time for landlords as they face a double whammy – increased cost of living, utility, and mortgage costs, as well as potential new Government regulation regarding energy efficiency standards.
In line with their ‘net zero’ ambitions, the Government has proposed key deadlines for, initially landlords, but eventually all homeowners, to bring their properties up to minimum standards of energy efficiency.
The statistics surrounding the quality of UK housing is quite frightening.
The UK has the oldest housing stock in Europe with around one in five homes failing to meet the Government’s definition of a ‘decent home’. UK homes lose heat up to three times faster than energy-efficient homes in countries like Germany and the UK housing stock contributes around 16% of all UK carbon emissions.
No wonder there is a growing call for large-scale retrofit of homes to reduce this.
The government wants homes in England and Wales to reach a minimum Energy Performance Certificate (EPC) level of ‘C’ by 2025 for new tenancies in the Private Rental Sector, and by 2028 for existing tenancies. For all other homeowners, the date is 2035.
The energy efficiency of a home is ranked using a system of Energy Performance Certificates that run from ‘A’, the most efficient, to ‘G’, the least efficient.
At present, in England only 42% of assessed homes currently reach C or above, whilst in Wales the figure is just over a third (37%).
Unfortunately, despite making these ambitions public, the legislation proposed initially for the Private Rental Sector has yet to be passed.
Having said this, the government has committed to reach net-zero by 2050, so these proposals for the housing stock are unlikely to go away.
However, this delay, against a backdrop of political uncertainty, rising energy prices and soaring interest rate increases rises means there has been little incentive for landlords to kick-start the retrofit revolution.
Although many landlords are not aware of the impending EPC legislation, some landlords are already selling off less energy-efficient properties and replacing them with good EPC rated properties.
Landlords understandably could view the proposed minimum EPC standards as another tick-box in the long list of legislation they have to adhere to allow them to let their property.
This means landlords are likely to be weighing up if the cost to improve the property is worth it or whether selling off problematic properties before the legislation comes into force is actually a better option.
In fact, around 70% of landlords sold rental homes rated EPC D to G in the last 6 months, with 53% purchasing an A-C rated property.
The knock on impact of trying to switch low EPC properties with higher EPC stock will accelerate the existing trend on property value, as evidenced by Rightmove research (upgrading from an F to a C EPC rating adds an additional 16% on average to the sold price of a property, while moving from an E to a C rating adds an additional 8%, and from a D to a C adds an average of 4%), especially with savings on energy bills being more tangible with cost of living going up.
What can landlords and lenders do?
Whilst in the short term selling and replacing stock might be the easiest approach, in the medium to longer term, especially as higher EPC properties start to attract more and more of a premium, retrofitting lower EPC rentals could become the most economical option again.
Therefore, lenders have a great opportunity to support landlords where they decide to complete improvements to the energy efficiency of their property.
Landlords can act now by reviewing and getting advice on how to improve the EPC as well as lining up the capital needed to do any work required.
Lenders also need to be ready to help support and educate landlords on energy efficiency upgrades so they can provide capital for landlords that have additional borrowing needs.
Lenders must also look to innovate with new products and propositions, such as ‘lend to improve’ offerings.
Landlords currently face several challenges and making sure their properties are energy efficiency is just one of them.
However, improved energy efficiency will not only benefit the environment, but it will also improve the living standards of their tenants – and ultimately it will benefit the landlords themselves as they will have desirable, energy efficient properties to let.”
There are many things that landlords can do which will not only save themselves money but will also make their properties more energy efficient.
These could range from small but impactful improvements right through to big retrofit projects. However, what we do need to do is make sure that no one is left behind as the country all transition to a net-zero future.
Live greener
You can find out more news about climate change, together with the latest government guidance, and regulation information at www.gov.uk/environment/climate-change-energy.
Paul Braithwaite is head of sustainable products at Leeds Building Society
