Like homebuyers, tenants are becoming more discerning when it comes to the energy efficiency of the properties they’re looking to rent.
Across the country – and indeed internationally – energy efficiency is a hot topic, both for environmental reasons and, when it comes to our homes, cost considerations. And for property investors and landlords, it’s a subject that’s becoming more difficult to ignore.
The new Labour government has confirmed plans to bring in new minimum energy efficiency standards in the private rented sector as part of the UK’s drive towards net-zero, with a target of all rental homes achieving an energy performance certificate (EPC) rating of C or higher by 2030.
This isn’t a new policy, as the previous Conservative government had been working towards similar plans for several years, before scrapping them last year for a number of reasons, including the cost-of-living crisis and feasibility.
Labour’s slightly more green-leaning approach led to it reinstating the target fairly quickly after taking the driver’s seat. From a property investment and buy-to-let perspective, this could mean some will face hefty costs ahead – namely, the cost of renovating sub-standard homes to make them more energy efficient.
With reducing the country’s carbon emissions now high on the agenda of many, whether or not government-led, focusing on newer, more energy efficient housing stock is likely to grow in popularity among property investors, who have reported being greatly concerned by the potential rule change.
Inflation and energy efficiency are top worries
A new study released by Finbri reveals just how preoccupied investors and landlords are by the reinstatement of energy efficiency targets for the rental market.
It found that 71% of investors are worried about energy costs (with 35% strongly concerned and 36% concerned). Interestingly, though, this is down from 80% who responded in this way in last year’s survey – perhaps because many had already begun to reassess and make changes to their property portfolios.
As Finbri notes: “Landlords with properties that do not meet the new EPC requirement could see a decline in
demand as energy efficiency becomes a critical factor for both tenants and buyers.”
Almost two-thirds of buy-to-let homes in the UK currently achieving an EPC rating of D or below, meaning some could end up having to spend large sums of money ensuring they up the energy efficiency of their properties. For others, investing in a new-build will prove to be the more future-proof option.
Inflation was another top concern for property investors in Finbri’s survey, and actually ranked higher on the list of worries than energy prices. More than three quarters (76%) of respondents said they were concerned about inflation, due to its impact on rising costs and affordability.
According to market analysis, upgrading the average property to the achieve an EPC rating of C would currently cost an average of £10,000. The cost of materials has risen significantly since the pandemic, meaning retrofitting some properties could be extremely costly.
Options for investors
For those property investors and landlords looking to get ahead of the potential rule change, there are steps that can be taken now, and which some are already doing or have already carried out.
According to Finbri, bridging loans are one option property investors can look at for financing and managing these additional costs. It also points towards green mortgages (cheaper rates linked to a home’s energy efficiency), government grants and private financing.
With 69% of investors in Finbri’s survey owning two or more investment properties, spreading the cost by carrying out phased upgrades could be another option.
Increasingly, property investors are looking at investing in new-build properties as the most future-safe option when it comes to energy efficiency. This avoids the risk of lowered tenant demand for less efficient properties, which can lead to a “brown discount” – where they are less green and therefore command less rent.
If you’re looking for your next property investment opportunity with energy efficiency in mind, get in touch with BuyAssociation today, or browse some of our current projects here.
