"The reality is that purchasers and our tenants of tomorrow are going to be looking for homes that literally don’t cost the earth in more ways than one."
I joke of course, but just a few years ago, very few lenders were interested in the subject, leaving it to specialist organisations such as the Ecology Building Society, who at that time were seen as quirky. The move to net zero by the aspirational deadline of 2050 has brought the topic firmly into the mortgage industry’s collective consciousness and, with the requirement to meet an earlier target in 2025 with EPC ratings of C or over in rental accommodation, there is significant activity amongst the lender community under green initiatives.
Questions, questions, questions
This deadline throws up some key questions including, how aware are our landlords of this requirement? Does our adviser community understand all the various permutations of green mortgages at present? Are lenders providing enough tangible resource to enable the intermediation? Is there a lot of greenwashing of products taking place? How applicable are these mortgages as potential solutions? Is there the right kind of support available from our lender community to really ensure that an adviser is able to support their landlord clients at present?
Without doubt there are a number of incentives available and discounts to be had for those that are actively looking to bring their properties up to a rating of C or more, and there are three years to go before the requirement is set to be enforced. However, if the past couple of years have taught us anything, it’s that time simply runs away with itself. Add into that the factors of the availability of workmen, or the materials needed to get this change underway and best advice would be that advisers should be educating their clients at all levels of ownership, from single unit ownership all the way through to portfolios, now.
Encouragingly, our experience is that advisers are still learning about what is available and they are keen to know more in order to be able to offer support, but this is a very fluid market at the moment and their time is limited due to the sheer volume of work they’re managing. This is exactly why we created the Buy to Let+ Hub, to be a highly focused area housing the relevant information advisers need to be able to support their own development and to educate clients in areas such as this and here we are encouraging lenders to supply the relevant material that will enable our advisers to offer their landlords the choice they are likely to require.
As we know, that there are many landlords, whether portfolio or not, who are sitting with ageing properties which, whilst they might be in good repair and be a much-loved home of the tenants, they simply won’t meet the EPC rating of C or above without considerable work. The concern is, will our landlords be able to afford the cost of the upgrading works? Is it going to be viable or is this now a misplaced investment, where the properties might now be an expense that’s a stretch too far and then what happens to that property next? Will these properties then be released back on to the market once they become ’unrentable’ and then are they potentially ‘unsaleable’?
Those with long term tenants in situ in 2025 won’t be immediately affected, although, where the property is below C, that is not a long-term strategy current plans require C and above to be achieved by 2028. Equally, how do we, as a society, support the properties where there is no existing mortgage in place, and therefore no incentives where the current estimate is between 50 and 60%?
The yin and yang of our industry means that where there are challenges, invariably there are opportunities as well, and as we have seen in recent years, buy-to-let is a much more resilient than we have given it credit. The recent Shawbrook EPC report quoted the figure of landlords who knew nothing about the changes to their properties at 25%. Add into that 22% of landlords having no idea how much updating their properties would cost and it becomes clear that education is essential in making a success of the new legislation – and advisers are perfectly placed to deliver that with support from our lender community.
We have long used the mantra at SimplyBiz Mortgages ‘Don’t forget the tenant’; what of them and their needs and aspirations? At a time when the cost of living is increasing, fuel charges are rising faster than some can earn the money, tensions are evident. As landlords access the finance they need through incentives or short-term finance, it is still a direct hit on their bottom line. So, what does they do with the costs incurred in developing their property? Do they absorb them, which in many cases they aren’t likely to be remedial, or is the harsh reality that those costs are going to be passed on to the tenants in the shape of rental increases?
What colour is the future?
The reality is that purchasers and our tenants of tomorrow are going to be looking for homes that literally don’t cost the earth in more ways than one. Energy efficient homes are one of the key priorities of those looking at present and therefore it has to be argued that surely this kind of development of older properties is an investment in the future. Our advisers have a key role to play in the education of the market, and the support lenders can provide will be vital in its delivery.
