The government has scrapped its previous energy efficiency upgrade plans for the housing market, but is it short-sighted for investors to deprioritise this factor in their property investments?
In a series of policy U-turns announced last week, Prime Minister Rishi Sunak announced he would be shelving previous plans to increase the energy efficiency of the country’s housing stock. This includes future proposals to raise the bar on energy performance certificates (EPCs) on buy-to-let properties.
The taskforce set up to speed up home improvements including installing insulation and upgrading boilers was also disbanded by Sunak, with the work set to be “streamlined” instead through other government activity.
Under minimum energy efficiency standards (MEES) in the private rented sector (PRS), UK rental homes would have been required to achieve a minimum EPC rating of C by 2028 on all new tenancies, up from the current minimum of E. Ahead of this, the market had already begun to see a significant shift towards achieving this.
What the market says
Recent reports have shown that a growing number of property investors had been favouring new-build and higher-rated homes in order to get ahead of the changes, while rising energy bills have also been pushing tenants to prioritise the EPC of a property when looking for a place to live.
One set of research just released by Shawbrook Bank even indicates that as many as four out of five landlords had already made some investment towards improving the energy efficiency of their portfolios. Of those, 30% claimed their rental properties now achieved an EPC rating of A-C.
As Emma Cox, managing director of real estate at Shawbrook Bank, points out, while freeing up capital for landlords by removing the legal requirement to upgrade homes might seem appealing in the short-term, it ignores the long-term need to address climate change.
“Rules might not be changing as soon as 2025, but professional landlords with modern, energy efficient stock will be in the best position to attract tenants, as well as reduce potential voids, and importantly, be prepared for future legislative change,” she said.
Why prioritise energy efficiency in an investment?
There are a number of reasons why it is still a good idea for property investors and buy-to-let landlords to bear in mind the energy efficiency of their existing property portfolio, as well as allowing it to have an influence on any future purchases.
- Lower bills: Energy bills have skyrocketed over the past two years, and despite government caps we are still paying much higher rates for our gas and electricity. Research published earlier this year showed that the average energy bill saving is currently £2,200 per year for new-builds – which tend to have the highest EPC ratings – compared with older homes.
- Attract more tenants: As a follow-on from the above point, the majority of tenants at the moment are being hit by rising rents and other costs, so saving money on energy bills is a huge selling point when it comes to choosing a rental property.
- Environmental: Awareness around climate change and the environmental impact of our carbon emissions continues to increase. Investing in an energy efficient, newer property is an effective way to reduce your carbon footprint.
- Quality of life: Living in a well-insulated, draught-proof property – and even one with modern, more efficient appliances – can improve your quality of life during the colder months, and drastically reduce the risk of damp and mould in a property.
- Improving selling prospects: While the politics may have changed, the idea of future-proofing an investment by opting for a highly-rated, high-quality property remains, and an EPC rating of A-C will continue to be a selling point in the future.
While energy bills remain high, and the cost of living crisis continues to push most people towards making more cost effective choices, it seems likely that the rising focus on energy efficiency will not disappear based on changing government policy.