Our chance to combat climate change is quickly slipping away, says Leeds Building Society’s Martese Carton in the latest iteration of The Lender’s Corner
The statistics are worrying. The UK has not only got the oldest housing stock in Europe with around one in five homes failing to meet the Government’s definition of a “decent home”, but UK homes remain among the least energy efficient in Europe.
Homes in the UK lose heat up to three times faster than energy-efficient homes in countries like Germany and the UK housing stock contributes around 16% of all UK carbon emissions. No wonder there is a growing call for large scale retrofit of homes to reduce this.
In line with their 2050 net zero ambitions, the government has proposed key deadlines for, initially landlords, but eventually all homeowners, to bring their properties up to minimum standards of energy efficiency. The proposed changes to Buy-to-Let Energy Performance Certificate (EPC) legislation is intended to kick-start the retrofit of UK stock.
The government wants homes in England and Wales to reach a minimum EPC level of “C” by 2025 for any new rental homes in the Private Rental Sector and by 2035 for all homes. At present, in England only 42% of assessed homes currently reach C or above.
Unfortunately, despite making these ambitions public, the legislation proposed initially for the Private Rental Sector has yet to be passed. However, this delay, against a back-drop of political uncertainty, rising energy prices, and soaring interest rate increases means there has been little incentive for landlords to kick-start the retrofit revolution.
But whilst around 85% of the public believe that climate change is an important issue, only 35% have adopted, or are planning to adopt, energy efficiency measures anytime soon.
And the costs of meeting the Government’s targets are enormous. According to the excellent “Net Zero Homes Report”, published in November last year by UK Finance, it is estimated that it will cost UK homes approaching £300 billion to reach the required EPC ratings.
Are EPCs fit for purpose?
EPCs are a well-established and useful tool for consumers and for other stakeholders in the industry such as lenders who are looking to benchmark their mortgage portfolio or for the government who are looking to set minimum efficiency requirements.
However, the current EPC metrics are now widely accepted as not being fit for purpose particularly as they don’t take account of emerging heating technologies. Getting an EPC is an unscientific process – nothing is tested, and nothing is measured. In addition, there are issues with the EPC database that need to be addressed. Though real progress has been made in assessing the number of homes which have an EPC rating, millions of properties in the UK still do not have an EPC rating.
In addition, because many homes will have updated their home energy efficiency, particularly as energy prices have soared, their EPC rating will not have changed – meaning that EPC ratings are often an outdated representation of energy efficiency. Finally, there is a time lag with the EPC database, with register data only published every four-to-six months.
In 2018 the Government called for evidence on EPCs resulting in an “action plan” in 2020 to deliver a system for “accurate, reliable and trusted EPCs”. These have still to be delivered. The report called for a reform of how our homes’ energy efficiency is measured and presented. It also called for fully digitalized EPC data in which owners can see the consequences of how they use their home and the impact of any energy-efficiency improvements they might make.
On 13th January an independent review into “Net Zero” was published. It looked at how the UK might deliver its own targets in a manner that was affordable, efficient, and in a pro- business way. Two of the recommendations made in the Report were to replace EPCs with a net zero performance certificate, and to legislate for all homes sold by 2033 to have an EPC rating of C.
For many people, change to EPCs cannot come soon enough. But for our homes to be energy efficient and cost effective, the EPC system – or any equivalent scheme – needs to be consistent, be backed by science and work for everyone.
So how is the proposed retrofit of the housing stock going?
Landlords are already reacting to the planned legislation. Many view the proposed minimum EPC standards as another tick-box in the long list of legislation they need to adhere to allow them to let their property. This means landlords are likely to be weighing up if the cost to improve the property is worth it, or whether selling off problematic properties before the legislation comes into force is a better option.
Recent research by BVA/BDRC in conjunction with the National Residential Landlords Association found that over half (54%) of landlords who are looking to sell their properties in the next twelve months would consider selling a property of theirs with an EPC rating of D or below.
Similarly, 59% of landlords who are thinking of buying properties in the next twelve months would only consider buying properties rated A-C. As the average cost of bringing non-energy efficient properties up to the required standard is currently around £8,300, the impact of the Government’s Net Zero policy is becoming clearer.
What does this mean for the UK’s retrofit ambitions?
The prospect of landlords selling off properties does not solve the key issue of net zero and the need for retrofit of existing UK stock. Instead of sparking a retrofit revolution, the proposed regulation could simply push the problem into the residential space for some 10 years down the line. The result is continued carbon emissions and resulting impacts on our environment.
Instead of landlords and especially large portfolio landlords, it will be residential owners who will ultimately be under financial pressure as 2035 approaches to ensure a minimum EPC C rating of their home.
Whilst in the short term selling and replacing stock might be the easiest approach, in the medium to longer term, especially as higher EPC properties start to attract more and more of a premium, retrofitting lower EPC rentals could become the most economical option again, especially considering the proposed £10,000 price cap exclusion.
The option of waiting for changes to the law means that the chance to combat climate change is slipping away by the day. Landlords can act now to improve the energy efficiency of their properties to benefit them, their tenants, and the environment.
The Lender’s Corner will return each month exclusively on Today’s Conveyancer with new updates, insights, and analysis from Leeds Building Society giving their perspective on the property market.
