Hayley Bruce explains the issues.
There are big changes coming in relation to the energy efficiency of home that are rented, mortgaged or sold. These may prevent properties from being rented or mortgaged and could make mortgages and home ownership and investment more expensive.
Since 2008, a property let on an assured shorthold tenancy is required to have an EPC. In 2020 Minimum Energy Efficiency Standards (MEES) were introduced which required landlords to make changes to any property with a rating of F and G. This month 59 Local Authorities have received funding from the Department for Business, Energy & Industrial Strategy to boost enforcement efforts against Landlords who do not comply.
The Energy Performance Certificate (EPC) is often remembered as the remainder of the HIPs (Home Information Packs). These packs were mandatory from August 2007, but, following heavy criticism, were suspended in May 2010. The EPC, a requirement under EU Directive 2002/91/EC, remains mandatory and today the EPC is still required before a property can be marketed either for sale or rental.
The EPC uses a rating system (A to G) to summarise the energy efficiency of the property and provides some recommendations as to how the EPC rating can be improved. The EPC is always provided to the buyer. It is often included in the property particulars from the estate agent and conveyancers usually provide a further copy during the transaction, normally with advice that solicitors are not energy efficiency experts and cannot comment further. Generally it is then filed away and not given much further thought. Recent research from NatWest and IHS Markit confirmed that the EPC rating was ranked one of the lowest factors when considering a property for purchase. Only 15% of households said that having a rating of C or above was essential to their decision. However, post COP-26 and with the new regulations the EPC will take on more relevance.
The Minimum Energy Performance of Buildings Bill, currently progressing through the House of Lords, will require all new tenancies to have an EPC Band C by 31st December 2025 and all existing tenancies by 31st December 2028. In addition, this legislation will also require all mortgage lenders to ensure that the average energy performance level of their domestic portfolio be at least band C by 31 December 2030. The Government have this month published their Heat and Buildings Strategy, which includes £5,000 grants for home-owners looking to switch their heating systems to low-carbon heat pumps. It also highlights the expected role of lenders in bringing about these changes.
To this end, we are already seeing lenders offering ‘green’ mortgages at better rates to those with higher band EPCs. The EPC will no longer be an irrelevant document suggesting outlandish and unaffordable improvements. It will be a tool to determine what a homeowner can do with their property. Those with lower ratings may find themselves locked out of better mortgage deals, unable to let or sell their properties. Suddenly the EPC is paramount in not only considering the running costs of the property and appealing to eco-minded tenants, but as a factor to decide whether funding is available.
Of course, mortgage-free home-owners who do not let their property will not be touched by any of the provisions, but we cannot rule out that EPC ratings will be used to assess taxes, such as Council Tax or SDLT in the future.
There are an estimated 6.1 million band D properties in the UK, which indicates substantial works (and costs) are required to meet these targets and it’s never too early to begin. EPC certificates last ten years, so if you have sold or let your property in that time you are likely to have a certificate, and this can be accessed and downloaded on the public EPC register. The EPC will include some recommendations as to how you can improve the rating. These frequently include loft insulation, cavity wall insulation, upgrading heating systems and double glazing. These are expensive improvements, and we may see some government grants or loans services set up to assist those of lower-incomes to meet the targets. Homeowners may need to incorporate the cost of these improvements into their household budgets when considering a purchase.
In any event, the EPC looks set to acquire newfound importance in the housing market.
This article first appeared in newsontheblock.com