Mortgages and energy perfomance certificates EPCs

I make no apology about visiting the issue of Energy Performance Certificates (EPCs) once again. This time, looking also at mortgages.

MORTGAGES AND ENERGY PERFOMANCE CERTIFICATES EPCS

This is one we really must watch.

(I am not going to repeat the points raised in previous posts – to read these please see the links at the end).

There can be no doubt that no matter what happens to the costs of all fuels and to the cost of electricity in the next few years, the demand for improvements to homes to raise the EPC rating is only going to keep rising, which will also continue to translate into rising costs for these improvements.

The government’s current obsession with Net Zero by 2050 (called by some cynics “Nut Zero”) is not going to go away – the science on man-made climate warming, as on Covid, being apparently “settled”. So, no jibbing Mr. Galileo at the back of the class! We must keep the Swedish Doom Goblin happy.

The stated intention is that all rental properties must be EPC rated C or higher before 1 Jan 2026 and for all existing tenancies before 1 Jan 2029. So if you have not done anything about it by the end of 2025, you had better hope your existing tenants don’t leave or you will have to do the improvements before you can let to someone new.

For other (owner occupied) properties the deadline is later – 1 January 2036, so once again private landlords are the guinea pigs.

Three things are already happening:

First, landlords are preferring to buy properties that are already rated C or above or those that can be easily made that way without too much expense. Lower rated properties have undoubtedly become less popular.

Second, landlords are raising rents faster than they otherwise would on lower rated properties so as to get the funds in now in order to action the improvements sooner or later. (So, tenants are already ultimately paying some of the cost!).

Third, landlords are more likely to sell grade D and E properties in the meantime.

This effects a lot of properties – there are thought to be around four and half million properties in the private rented sector and anywhere between around one million and three million of them are thought to need improvements to attain grade C, depending on which survey you believe.

Mortgages for Business reports that around 60% of landlords are going to struggle to make the necessary changes.

MORTGAGES CHEAPER FOR HIGH ENERGY PERFOMANCE CERTIFICATES EPC SCORES

One of the small attractions to keeping Greta happy will be that once you have achieved the magical grade C rating, cheaper mortgage options become available, with some brokers telling me that 20 per cent of buy to let mortgages offer a better rate if the property has achieved a grade C, with even better deals if the rating is A or B.

Years ago, when I used to provide a lot more consulting advice for mortgage lenders, I used to frequently suggest to them that the interest rates they should charge should better reflect other aspects of the property than just the loan to value. I never got much joy then, but perhaps I sparked some interest and planted a seed!

There may be a silver lining. Landlords who have made improvements in the last few years and have raised their EPC level to C or above but who have not bothered to get a new EPC done may also be missing out on better mortgage deals. It may be worth them getting a new EPC done and seeing if they can get a better mortgage rate.

But the mortgage savings are not that great. My mortgage broker says right now that she is doing a tiny £60K, 30% LTV buy to let mortgage on which the savings for getting an A or B rating work out at just £60 a year. That is not going to buy a heck of a lot of insulation.

Certainly, you should keep a record of all improvements you make, get them registered (if applicable and notifiable for buildings control) and keep receipts too. This is because right now, there is uncertainty how far back you can go to count a spend of £10,000 which is supposed to get you an exemption and allow you to continue to let even if under grade C.

But there is much uncertainty around this and still some (dwindling) hope that the deadline will be kicked down the road.

Meanwhile, the Chinese open another coal fired power station!

One thing no one seems to have thought about is how this impacts flat owners. I can certainly imagine the £s signs shining in the freeholders’ and managing agents’ faces as they impose lots of charges for “consent” to approve improvements to the structure of buildings to raise EPC levels.

And how will things work where a building is split between flats which are let and flats which are owner occupied?

You, as a landlord may want the property improved sooner rather than later as your deadline is just a few years away, but you may be out-voted by owner occupied flats who don’t need to worry much until sometime in the early 2030s.

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