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  • Writer's pictureInvestment Synergy Team

What does the EPC U-turn mean for landlords and homeowners?

Melissa York - The Times

The property market may reach boiling point after Rishi Sunak´s decision to scrap energy efficiency targets - unless there is more clarity on the issue

Two of our houses are currently on the market, but we are reconsidering that now,” Peter Ash, 70, says. Ash, who is retired, lets properties, owned jointly with family members, around Hartlepool and Hull in the northeast of England to top up his income.

Before the prime minister, Rishi Sunak, scrapped energy efficiency targets for privately rented properties last week, Ash faced paying thousands of pounds to improve the energy efficiency on all but one of his eleven lets.

Two of Ash’s properties were built in the 1920s, but many of them are late-Victorian buildings with no cavity walls. This makes them difficult to insulate fully to modern standards. Four of his houses have an EPC (energy performance certificate) rating of E (A is the best, G the worst). The other six are rated D, but from 2028 he would have had to meet a minimum rating of C in order to let them out legally — until Sunak intervened.

“The EPCs are very inconsistent depending on who the assessor is. We have two houses in the same street that are a very similar spec with different EPCs, which is a puzzle to us,” Ash says. He made improvements to one D-rated property, including LED lighting and radiator valves, but the government changed the assessment criteria and the EPC came back with an even lower rating in the D range.

“They [EPC requirements] are going to come in eventually, so we’re still pursuing [the upgrades] — we were selling two houses because it’s too expensive to do,” Ash adds. “It’s a cheap area and all the houses are under £100,000 in value. The government said you won’t have to pay more than £10,000 [on eco improvements], but that’s a significant proportion of the property’s value. When you’re only getting £400 a month rent for it, you’re going to be making a loss.”

A tenant has been living in one of his properties since 2001, and Ash has only increased the rent once. Now he says he’ll have to increase it every year to be able to afford the energy efficiency works.

Before Sunak’s reassessment, four in five landlords surveyed by the lender Shawbrook Bank said they were prepared for the EPC deadline. Almost a third of these said their properties were already EPC rated A to C, and half had improvement plans in place.

While more than half of private rented homes still need upgrading to EPC C or higher, progress has been made in recent years. According to Savills estate agency, half of the EPCs issued in 2021/22 were below a C rating, compared with nearly three quarters in 2016/17.

A ban on installing oil and LPG (liquefied petroleum gas) boilers and coal heating has also been extended until 2035, instead of being phased out from 2026. The ban on the sale of gas boilers is still marked for 2035, but struggling homeowners who cannot afford to switch to a greener alternative — thought to be about five million households — will be exempt.

Grants available through the government’s boiler upgrade scheme to help homeowners replace their old boilers with heat pumps will be increased from £5,000 to £7,500, but the total funding available, £150 million, will stay the same, so fewer people will have access to it.

Housing now accounts for over a fifth of our carbon emissions, a rise from 9 per cent between 2014 and 2020. Heating our homes accounts for 70 per cent of these emissions, which is why the government sought to bring every home up to an EPC C rating by 2035.

Savills reports that nearly 80 per cent of homes rely on gas boilers for heating. The bulk of the problem lies with the old age of our properties, which is the single biggest factor when it comes to energy efficiency.

The introduction of green building regulations means that about 85 per cent of new-build homes have an EPC rating of A or B. London, for example, has the lowest proportion of homes on mains gas (71 per cent) because it has more dense blocks of new-build flats than other regions, the majority of which are connected to community heating schemes. In the northeast of England, where only 2.4 per cent of homes were built in the past four years, 88 per cent of homes use mains gas.

EPC D is the most common rating across England and Wales, but there is a north-south divide due to the prevalence of older housing stock outside the south. In the southeast, 46 per cent of homes sold in the three years to May 2023 had an EPC rating of C or higher, compared to 35 per cent in Wales and 38 per cent in Yorkshire and the Humber.

The average cost to lift a property from EPC D to C ranges from about £9,000 to as much as £27,000 for G-rated properties. Most homeowners buy a new boiler only when their old one breaks. They do not strategically save up for it as they might for a loft extension or a new kitchen.

Dan Jestico, director of sustainable design at Savills, says: “We recommend that you don’t just slap in a heat pump as a replacement for a boiler because the heating system has been designed around a much higher water temperature. You also need different radiators, pipework and to improve the insulation and air tightness of the house.

Doing work to the heating infrastructure and building fabric is prohibitively expensive, especially if it’s a distress purchase, as it often is, so the affordable option for most people is to buy a new boiler.”

If homeowners and landlords were able to recoup some of the cost through higher house prices and rents, they could be persuaded to do the work. If the energy bill saving in an eco-friendly property outweighs the rent premium, then a tenant may be willing to pay more for a newer property, for example.

Boutaina Cansick, head of lettings at the estate agency Johns & Co, says: “Tenants are definitely still conscious of energy efficiency, especially families with children. It is a key consideration for many renters, and it is not likely to change significantly with these regulatory changes.”

The most eco-friendly properties, with an A-rated EPC, sold for 28 per cent more than the average value for its region, Savills’ analysis shows. A-rated homes commanded the biggest premium in Yorkshire and the Humber, where they sold for 41 per cent more; these homes were often new-builds — a rare commodity in the region.

Properties with an EPC E rating or lower can still maintain high prices, however; these houses tend to be larger, period properties that command a “heritage premium”. There is little detail yet on the “struggling households” who will be exempt from the gas boiler ban, but it is likely to be owners of older and listed properties that are difficult to upgrade.

More than half of the owners of listed properties are in the lowest socioeconomic categories, according to data from the Listed Property Owners’ Club (LPOC); these owners can face energy bills up to three times higher than the UK average. Geoffrey Lazell, 75, thinks owners of listed buildings “are the sacrificial lambs on the altar of net zero”. He has lived in a 370-year-old, timber-framed, wattle-and-daub house in Bressingham, Norfolk, since 2000.

His oil-fired boiler will be 30 years old in 2026, but a heat pump would not be “practical or permissible” in his grade II listed home. It cannot be fully insulated as there is no cavity wall and it would involve changing the structure of the building, which his listing forbids, and the government’s grant “doesn’t go anywhere near” the costs involved.

Lazell says: “Clearly there’s got to be a lot more research and development put into this argument and it’s not something that can be cured overnight. [The gas boiler ban delay] is common sense, but it is only kicking the can down the road. I don’t know that it’s going to ultimately solve my problem.”

LPOC, which represents the owners of more than 500,000 listed buildings, is calling for VAT relief on listed homes, claiming that nine out of ten of its members had postponed or cancelled works because the tax made them unaffordable.

There is also confusion about which buildings are EPC exempt — and a misconception that all listed buildings are — and there is no definitive list of “unacceptable alterations” for protected buildings.

Martin Anslow, director of LPOC, says: “Planners don’t have the capacity, tradesmen often lack the specific skill set and, importantly, homeowners alone can’t be burdened with the intimidating costs involved.”

VAT relief could be extended to all homeowners upgrading their heating system, Jestico suggests, and stamp duty rebates could also be offered to buyers of older properties who carry out eco-works within a certain time frame.

The resounding cry from all corners is for clarity and consistency. Landlords cannot make investments if they do not know the direction of travel, says Ben Beadle, chief executive of the National Residential Landlords Association. He adds: “Ministers need to use the space they are creating to develop a full plan that supports the rental market to make the energy efficiency improvements we all want to see.

“This must include appropriate financial support and reform of the tax system, which currently fails to support investment in energy efficiency measures.”

Investment Synergy - The 3 C´s - consequence's for a lack of clarity and consistency is being borne yet again by beleaguered home owners ....

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