Minimum Energy Efficiency Standards - Sustainable or Unattainable?

Over the last few years, we have watched as more and more companies across the globe have joined the mission to become carbon neutral. UPS, the world’s largest delivery company, have deployed 10,000 electric delivery trucks as part of their effort to lower carbon emissions and Revolution Bar Group, a popular UK bar chain, have even announced the removal of the traditional passion fruit garnish that accompanies the classic ‘Pornstar Martini’ (will things ever be the same?) in order to reduce their carbon footprint. So, it is not surprising that, as a society our awareness of the impact we have on the environment is growing.??

A survey conducted by Ipsos MORI revealed that 85% of UK adults are now worried about the climate crisis. More often than not, debates regarding the increasing climate are embedded within discussions of international travel, car pollution, and manufacturing. However, as recent data highlights, a big contributor to the UK’s carbon footprint lies much closer to home.??

The residential sector accounted for a staggering 20.8% of all UK Carbon emissions in 2020 according to stats shared by ‘Department for Business, Energy and Industrial Strategy’ (BEIS) and so reducing the carbon footprint of UK Households is crucial for the UK Government. Having signed the Paris Agreement, the UK is now working towards a target of net zero emissions by 2050.??

What is an EPC?

An EPC (Energy Performance Certificate) rates a property’s energy efficiency from A (most efficient) to G (least efficient) and is required when a property is built, sold, or rented. As it currently stands, over half of UK homes have an EPC score below band C.?

An EPC will show the estimated energy costs for that property (for lighting, heating, and hot water) and will also include recommendations on how to make the property more energy efficient - and therefore reduce the energy bills. The projected costs for implementing those changes would be displayed against the potential savings.?

Boosting the EPC of a property can be done in several ways including upgrading to double or triple glazed windows, installing loft or cavity wall insulation, or replacing/upgrading your boiler.??

What are the benefits of having an energy efficient home?

For homeowners, simply being seen to be ‘doing the right thing’ may not be quite enough motivation when considering the upfront cost required to upgrade the EPC rating of their home. Often, it is the potential reduction in household bills that can prove to be the bigger incentive. With the energy market at an all-time high, and UK customers spending more than ever on their gas and electricity bills, people are keen to take steps that will help them reduce their energy consumption long-term. The BEIS reported that homes with a band C EPC rating cost around ￡740 less to run than homes with a band E rating. Further to this, research, conducted by Moneysupermarket, has shown a positive correlation between the market value of a home and its EPC rating - meaning homeowners who are making these renovations are more likely to enjoy an improved resale price should they choose to sell. Predictably, the potential of such substantial financial benefits has resulted in some homeowners and prospective buyers wanting more sustainable homes.?

Adding to these benefits, recent updates to The Minimum Energy Efficiency Standards (MEES) have provided another motivator for many homeowners with lower EPC ratings.?

Upcoming changes to EPC guidance for Buy-To-Let

With a view to make the UK Government’s target of net zero emissions by 2050, the Govt has set a precedent that, by 2025, all landlords will be legally required to provide an EPC of C or above for new tenancies. This will apply to all tenancies by 2028. Failure to comply can result in penalties of up to ￡30,000.?

Landlords are now faced with the task of ‘going green’ - and doing so quickly. Undoubtably, anyone looking to enter the buy-to-let market will now be seriously considering the EPC rating of any property they wish to purchase.?

Although the benefits of having an energy-efficient home are plentiful, the cost attached to the renovations that may be necessary can be extremely high (particularly for homes currently rated F or G). Research conducted by ‘Rightmove’ in 2021, suggests that over 1.5 million homes will never be able to obtain an EPC of C even with a limitless spend on renovations.?

A survey carried out by ‘Mortgages for Business’ concluded that three in five landlords are now interested in mortgage products that offer more competitive rates in return for improving the EPC of a home and the Intermediary Mortgage Lenders Association (IMLA) have declared that 74% of lenders anticipate the demand for this sort of mortgage product to soar in the next few years.?

What is a Green Mortgage?

In straightforward terms, a ‘Green Mortgage’ is a product offered by bank/mortgage lender that will incentivise the borrower to either buy a new-built, energy efficient home, or to commit to making the necessary improvements to raise the EPC rating of an existing home that they wish to buy. This is done by offering lower interest rates, cashback, or allowing the borrower to lend more money.??

Put plainly, green mortgages encourage homeowners to live in homes that are more energy efficient and are a way for lenders to support the UK Government’s mission to reduce the carbon footprint of the residential sector.??

Why are lenders interested in these products?

The BEIS have advised lenders to now take the EPC of a property into account when considering lending, despite the concerns of the IMLA who have stressed the negative impact this could have on homeowners.?

As we know, lenders will always calculate the risk that comes with any investment before making it, and it has been suggested that ‘green households’ are considered as lower risk for two key reasons:?

• As discussed above, a home that is energy efficient is likely to have lower energy bills. Lower household expenditure can often mean a reduced risk of financial difficulty and, therefore, lessened chances of mortgage arrears.??
• Generally, households that improve their EPC’s also advance their market value. Increased value to the property provides further security for the lender. ?

Ecology vs Economy

For the most part, the notion that lenders may look more favourably on those buying energy efficient homes has been welcomed, however the real concern is for those homeowners whose properties either cannot be improved enough to achieve an EPC of C or above, or who will have to spend extreme sums of money to do so. The IMLA believe that the Government implementing EPC targets upon lenders could result in homeowners with older properties (where it is often more difficult to improve an EPC rating) facing difficulties when they opt to sell or are remortgaging their homes, eventually devaluing properties. This could be detrimental to the property market.?

With the 2025 deadline looming, and over a third of landlords admitting that they doubt whether they can raise the EPC rating of all their properties to a C in a way that doesn’t cause them huge financial detriment, many are considering quitting buy-to-let.?

As Ben Thompson, deputy chief executive at the MAB has stated, “we need combined industry thinking and innovation to work out how best and who best can influence those properties not meeting A, B, or C ratings to make sure the challenge is being properly tackled. Only then will the real benefits start to be felt.”??

MPowered Mortgages – ECO EPC Range

On 9th December 2021 we, at MPowered Mortgages, launched our new ECO EPC Range rewarding landlords who are purchasing or remortgaging a property with an EPC rating of A, B or C. The benefits include lower rates, free valuations (for a limited period) and the choice from a range of fixed rates to cater for various needs.???

However, we are more than aware that whilst rewarding the homes with higher EPC ratings is certainly a good place to start, much more needs to be done to help homes that are currently rated band D or below. With many landlords seemingly unable to shoulder the financial burden that comes with making the necessary renovations, MPowered Mortgages believe that all lenders and brokers will now play a pivotal role in encouraging more the Government to make more funding available to property owners. It is vital that lenders and brokers work together to push for assistance from the Government, in order to be able to offer existing and prospective UK homeowners a mortgage product that will make the 2025 EPC target for landlords achievable and financially viable.?

For intermediary use only.

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