We all agree that we need to upgrade the UK’s housing stock to meet net zero, but we can’t shy away from the consequences of proposed changes for the private rented sector. Our Managing Director for Mortgages, Richard Rowntree, provides his thoughts.

I want to make clear from the start that I fully support the notion that we need to upgrade the UK’s housing stock as we strive towards net zero carbon emissions by 2050.

However, whilst supporting the principles behind the drive to upgrade the energy efficiency of privately rented homes, we shouldn’t shy away from the consequences – intended or otherwise – that the current proposals around Energy Performance Certificates (EPC) could bring.

As a reminder, the Government has consulted on bringing in a minimum EPC rating of C for new tenancies from 2025 and all tenancies from 2028. It will also raise the minimum landlord spend cap from £2,500 to £10,000.

The impact of these regulations as currently slated is likely to be twofold. First, it will put further pressure on private rented sector (PRS) stock at a time when the market is under extreme stress.

The Government’s own English Housing Survey shows 600,000 fewer homes are in the PRS than in 2015 as a result of Stamp Duty and tax changes; we are now seeing record high levels of rental inflation as a surge of tenant demand hits a constrained sector.

Landlords have made great strides in upgrading the energy performance of privately rented homes – the proportion of EPC A-C rated homes has gone from less than two in 10 to approximately four in 10 over the past decade.

But put another way, it has taken 10 years and billions of pounds of investment to achieve that feat. The Government is now asking the sector to address the remaining six in 10 homes in the space of three to four years.

The 2028 deadline is largely irrelevant due to the turnover of stock in the PRS, so the majority of homes in the sector will need to be ready for the 2025 deadline, or at least shortly after.

For some landlords, it may be the straw that breaks the camel’s back after the myriad of tax and regulatory changes they have had to contend with since midway through the last decade.

A high proportion of PRS property is pre-war and terraced, which is very expensive and difficult to upgrade. If implemented in current form, we could see many smaller scale landlords deciding now is the time to exit, or potential first-time investors thinking it’s far simpler to put their money into another asset.

For those committed to meeting the regulations, can we be sure that there will be the necessary availability of skilled tradespeople to carry out the improvement work? Will there be any financial support package that suits all parts of the housing market? We certainly don’t want to see another disastrous and overly burdensome scheme such as the Green Homes grant.

We are looking at products to help landlords upgrade their homes. They will need to be more innovative than simply borrowing more money and we hope to be able to launch these soon.

The second major impact is on buyer behaviour. We are likely to see a switch in focus towards higher EPC-rated property and new build homes. Indeed, many of the green mortgages available today – including those from Paragon – incentivise such behaviour.

This will clearly improve the proportion of homes in the PRS that are rated A-C but it will intensify competition for this type of property between landlords and residential buyers, something I’m sure the Government hadn’t intended.

It also fails to address the core issue of upgrading housing stock. If landlords are simply pivoting to newer homes, that’s great for the PRS but just passes the upgrade problem on.

These are just two of the issues. There are many, many more that will be discussed and debated in the coming months.

We are all waiting for the next update from the Government on this issue, but we would like to see some more clarity on these issues and discussion on how we can move forward as an industry to address the subject of carbon emissions from housing stock.

Richard Rowntree
Managing Director for Mortgages

This article first appeared in Mortgage Solutions