The property industry, indeed the entire economic ecosystem, is going green. Efforts are well underway to make the UK as environmentally friendly as possible. In the property world, these efforts are defined by EPC legislative proposals.
The government proposes that by 2025, all newly privately-rented properties must have an EPC rating of at least C. Existing tenancies will have until 2028. Currently, landlords can’t let properties if they have an EPC rating below E, while sellers may struggle to find a buyer if they have a bad rating.
While new minimums for residential homes won’t come into play for a few years yet, the market is already shifting in anticipation of the changes. Those who fall foul of these movements may not get very far with their property investment plans over the coming years.
But at the same time, there is opportunity for those who start preparing now. If you’re unsure of how EPC ratings affect mortgages, this blog could provide some clarity.
Source: Mortgage Introducer, House Beautiful
How do EPC ratings affect mortgages?
As environmental pressure ramps up, it may prove increasingly difficult to attain mortgages for properties with low EPC ratings. While minimum EPC ratings for mortgages may vary between lenders, there may only be very restrictive terms for those with low ratings.
Where they are offered, there will likely be an expectation that improvement will be made – imminently. In some cases, applications may be rejected outright.
Currently, in England and Wales, the median energy efficiency rating is D, with scores of 67 and 65 respectively. With a minimum of C on the horizon, it’s unlikely that these households will get much leeway.
We’re already seeing evidence for greener preferences on the high-street. Suffolk Building Society recently became the latest mainstream name to offer a buy-to-let product specifically targeted at landlords with good EPC ratings.
The focus on a greener future has been so impactful, we’ve even seen lenders launch entirely new ranges. In recent years, lenders started offering green mortgages. These are designed to reward those purchasing energy efficient homes, or making changes to their existing ones.
This manifests itself in two different ways. If you’re buying a property with a high EPC rating, say A or B, some lenders will offer you cashback or a better rate on the mortgage.
If you make improvements to your existing home, such as installing solar panels or upgrading your heating system, you may benefit from a discounted interest rate, or be offered cashback on any money borrowed to upgrade the property.
Evidently, there are incentives out there. But property investors may be at risk of missing out on them. There are both positive and negative answers to the question of does an EPC rating affect mortgage outcomes.
Source: HSBC, ONS, Landlord Today, The Times, Money Saving Expert
A worrying lack of awareness
Currently, the EPC proposals primarily affects the private rental sector. But landlords in this market appear woefully unprepared for what’s coming. Nearly two-thirds (64%) of private rental properties would fail to reach an EPC rating of C or higher by the end of 2025, according to research from LandTech.
This could be especially problematic considering how many people are completely unaware of what’s on the way. The government has a broader target aiming for as many homes as possible falling into C EPC band by 2035. Yet, a recent survey from the Mortgage Advice Bureau revealed 66% of homeowners didn’t know anything about this drive.
Homeowners and property investors who are not up-to-speed now risk facing a closed off market later. This won’t just affect them from a lending perspective either. You won’t be the only one asking yourself how does an EPC rating affect my mortgage and property. Your potential buyers, tenants, and competition will be too.
Already, landlords and buy-to-let investors are avoiding properties with low EPC ratings. The costs and downsides are simply too high to bare for many.
Some may be at risk of owning an asset in a market that has little demand for it – but plenty of unwanted supply.
Source: Landlord Zone, Financial Reporter, Mortgage Introducer
But, opportunity abounds for those who act
Fortunately, there is still time to act. Those with properties with less-than-perfect EPC scores can take action to improve their ratings. What’s more, by doing so, they could attract higher rental yields and returns.
Demand for energy-efficient homes just keeps on rising. In fact, demand is so high that some buyers would be willing to pay up to a 20% premium for low-carbon homes. Meanwhile, private renters would pay up to 13% more rent for an energy-efficient property.
EPC ratings aren’t set in stone. By investing in some upgrades, you could rise through the ranks well ahead of the looming deadlines. These can range from simple tweaks, to more substantial projects.
You could start with something as simple as installing low energy lighting. Replacing halogen lightbulbs with energy efficient LEDs is an easy swap out.
Replacing single glazed windows with double glazed options is another obvious solution. Not only will these changes likely result in a higher EPC score, but they could also cut your, or your tenants, ongoing energy bills.
There are also the big upgrades. Installing insulation – be it in the walls, under the floors, or in the loft – should substantially improve your property’s energy efficiency. What’s more, replacing old boilers, installing solar panels, and upgrading your heating controls should all have the same effect.
Source: IFA Magazine, Commercial Trust
How to get finance for EPC rating improvements
We understand though, that these upgrades can take time to see through to completion. And of course, the initial costs could be very high. It can be daunting to plan this all out with a two-year countdown ticking away.
But, this is where specialist finance can help. We have products specifically designed with these complications in mind. We know you’re facing a rapid market which requires constant tweaking.
That’s why we prioritise adaptability and speed. Our funding could be with you in as little as 3 days. You could get the ball rolling this month, and not have to worry about that 2025 deadline.
It’s true, EPC ratings do affect mortgages, but we can help you prepare. If you want to get ahead of any environmental challenges, and reap the rewards on the other side, we’re here for you.
MFS are a bridging loan and buy-to-let mortgage provider, not financial advisors. Therefore, Investors are encouraged to seek professional advice.