As the housing and rental market takes stock of the latest energy performance targets from the government, the new-build sector could be set to see renewed appetite.
Buy-to-let landlords and property investors have been given a new deadline to ensure their rental properties hit the required energy performance certificate (EPC) rating targets over the coming years.
As part of the government’s ‘Plan for Change’, all properties rented out in England’s private rented sector (PRS) will need to achieve an EPC rating of C or higher by 2030. This is a target pushed back from the previous one set by the Conservative government, which had proposed a 2028 deadline for properties to be made compliant.
While the new minimum energy efficiency standards had been on the cards for some time, with many landlords already upgrading their property portfolios, the new timeframe means investors are being urged to plan their next steps now to hit the target with their properties.
With new-build homes being the most energy efficient of all the UK’s housing stock, with the majority achieving the top ratings of A or B meaning that no further work is required, they are set to become even more popular among investors looking to future-proof their stock.
New-builds will be more attractive
This is a sentiment echoed by Gary Hall, head of lettings at Knight Frank, who believes that some landlords will find it more challenging than others “to fund substantial improvements” to their properties without clear guidance and financial support.
This is linked to the fact that the spending cap – how much landlords must spend on relevant upgrades before they can apply for an exemption if their property doesn’t meet the minimum standard – could be increased under new rules to £15,000. If a landlord spends this amount and still doesn’t reach an EPC rating of C, they may also find that their property is less desirable to tenants, as general standards in the sector improve.
“To make meaningful progress in improving energy efficiency, landlords need assurance from the government that there will be grants available and a cap on the amount they will be required to spend. Introducing tax breaks for energy efficiency improvements would be a great way to support landlords and in turn, help the government achieve its targets.
“Bringing homes up to a good EPC level is in everyone’s best interests, but it can’t be at the detriment of the number of available properties on the rental market, which is reducing yearly. We must encourage investment in this sector, not force landlords to sell due to further margin erosion.”
The new-build sector could therefore become more appealing to property investors and landlords as a result, as they can avoid the additional time and expense of upgrading an old, inefficient property – which may need to be done while the property is vacant, further impacting margins as the landlord must cover the costs of the void period.
Flora Harley, head of ESG research at Knight Frank, said: “Longer-term, we expect the new homes market will stand to benefit, given higher building and efficiency standards which will be more attractive to new investors than non-compliant older stock.”
New-builds vs older homes for energy efficiency
According to the latest research from Home Builders Federation (HBF), new-build homes emit 65% less carbon than older properties each year on average. Newly built properties emit around 1.22 tonnes of carbon per year, compared with 3.51 tonnes for existing homes.
Property investors and landlords can also be more confident of being compliant with EPC regulations from day one if they invest in a new-build, as 86% of all brand-new homes achieve a rating of A or B. This compares with less than 5% of existing properties that achieve the top scores.
If you’re investing in an off-plan new-build – which is a particularly popular strategy for investors looking to maximise their potential returns – it is advisable to check with the developer what the EPC rating is expected to be upon completion of the unit.
While investing in a highly energy efficient property will ensure regulatory compliance by 2030, it is also likely to prove a more future-proof option in terms of its appeal to tenants: HBF’s research also revealed that average heating, hot water and lighting costs are around 50% cheaper in a brand-new property than in an older one, making the resident’s running costs substantially lower.
The cheapest property type to live in by energy costs are new-build flats and maisonettes, according to HBF, with average annual energy bills of £644.75. This compares with £1,040.16 for existing flats and maisonettes.
Overall, those who live in brand-new homes can expect to pay annual energy costs of £755.09, with inhabitants of existing properties forking out more than double, at £1,535.09 per year.
If you’d like to find out more about investing in an off-plan new-build property to get ahead of the EPC changes, get in touch with BuyAssociation today to discuss our current and upcoming opportunities across the UK.
