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Lack of guidance on new energy efficiency standards creating uncertainty

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Delaying changes to private rented sector (PRS) sustainability standards may seem like something to celebrate because, in theory, landlords get more time to comply with any new rules. But, as Commercial Director for Mortgages, Louisa Sedgwick, explains in Mortgage Solutions, the lack of detail provided by policymakers leaves landlords left guessing what they need to do and by when.  

It’s been over two years that the tightening of PRS minimum energy efficiency standards, whereby privately rented homes will need to achieve energy performance certificate ratings of A-C, was proposed by the Government. During that time, concerns have been raised that the deadlines proposed – 2025 for new tenancies and 2028 for all others – would not allow sufficient time to upgrade approximately 2.5 million PRS properties with EPC ratings below C currently.  

So, I imagine many landlords breathed a sigh of relief recently when Levelling Up Secretary Michael Gove hinted that the changes would be pushed back.

Still none the wiser 

But, while Gove acknowledged that too much is being asked of the PRS, he stopped short of providing any details that would help landlords to understand how the policy update would impact them. After speaking to landlords, we know that this uncertainty is hindering efforts to build on the progress made across the PRS during the past decade in reducing the negative impact that homes have on the environment.

As part of Paragon’s recent research, we asked 1200 landlords what barriers they face in making their portfolios more sustainable. Unsurprisingly, the cost was the biggest obstacle, chosen by 63%, followed by the proposals not being made into law, cited as a barrier for 33% of landlords.

Linked to this, landlords were also asked to think about the support they need. Again, the financial aspect was top of mind, with 62% of landlords seeking cost effective ways to make improvements to their portfolios. Clarity on when the changes will be implemented was chosen by 55% of landlords, making it the second most common support need and 30% would value information on the impact on landlords if properties are non-compliant with the new standards.

Influencing decisions 

Nevertheless, we do see that some landlords have started to make their portfolios more energy efficient, some mindful of forthcoming regulations, with the broader benefits, such as increases in capital values, also a motivating factor.

The proposals have played a part in persuading 15% of the landlords we surveyed to purchase properties that already make the grade. This further dilutes the proportion of lower energy efficient homes in the sector, a trend seen over the past decade that has driven a 165% increase in the proportion of A – C rated homes in the sector to 1.92 million.

An additional 10% of landlords are investing in homes that fall into EPC band D with the intention of upping their rating, while 19% have already undertaken works to make their properties more sustainable and a further 14% are doing so currently.

This investment suggests that while still a source of uncertainty for the sector, the proposed changes to regulations have bought the sustainability issue into focus. Although the need to go green is clear, how best to go about it is less obvious so keeping up to date on the issue and in a position to provide landlords with advice will serve brokers well.

With the average cost to bring a property up to EPC band C estimated to be in excess of £7,000, lenders will have a part to play too, and this is something that is shaping our strategy. I imagine other lenders are also looking at ways they can help to facilitate investment in green homes and we’re likely to see this have a growing influence on the mortgage products on offer as we approach the deadline for new energy efficiency standards, whenever that may be.  

Read Paragon's The private rented sector energy challenge report.

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