How influential are EPC ratings?

The average homes’ Energy Performance Certificate (EPC) rating is D, according to data from the Office for National Statistics (ONS).

With the importance of higher EPC rated homes on the rise through a governmental push, one expert has discussed the significance of raising ratings as well as the wider impact that would have on the market.

Landlords’ best interests

Terry Woodley (pictured), managing director of development finance at specialist savings and lending bank Shawbrook, believes despite market conditions, it is in fact a good time and opportunity for landlords to improve their EPC ratings.

“Now is a good time to conduct improvements because the sales market has slowed, and whenever you see a reduction in the sales market, you normally see an uptick in the rental market, as people need to live somewhere,” Woodley said.

Woodley added that an estimated 35% of the buyers’ market represented first-time buyer owner occupiers.

So, he said, if that 35% of the market were unable to get a mortgage, then they would be forced to look to rental options.

“As such, rental market demand increases, and that means there is a significant opportunity for landlords to increase rents,” he said.

Upping rental prices due to the uptick in demand from potential tenants, Woodley said, could help contribute toward some of the costs of refurbing a property to a higher EPC rating.

The flip side of this of course, he added, was that buy-to-let landlords would eventually be incurring additional costs for their own mortgage, however increasing rental prices would also go some way to offsetting these extra costs too.

“If you are in the position as a buy-to-let landlord where you do not need to renegotiate your own mortgage rate for an extended period of time, then certainly now is a good opportunity to use the additional funds from increased rental prices to contribute toward improving the EPC rating of the home,” Woodley said.

As costs have increased so significantly, he said renters would be prioritising properties that could offer lower bills, so higher EPC rated homes would be in demand.

“Aside from the obvious benefits, it is also best for the wider climate to be improving properties’ EPC ratings,” Woodley added.

Rising importance

Buyers and renters, Woodley said, were very conscious of EPC ratings now, and even a few years ago the energy efficiency of a property was not really on tenants’ radars.

“Investors will find that they will be challenged more by tenants about what their EPC rating is and what that means for their monthly bills,” he added.

Despite higher EPC rated properties seeing greater demand, due to the shortfall of housing, Woodley said lower rated homes would still see some level of activity from renters.

However, he said the price point of these homes would likely be far lower, as they would continue to attract less and less interest from tenants.

Depending on the amount of profit these homes would be able to generate, Woodley said some investors, who were unable to improve the EPC rating of their rental properties, would be forced to drop out of the market altogether.

Current trends

In regards to developers, Woodley said they wanted to push further up the EPC rating chain, and produce the highest rated homes possible.

It often cost a lot to move up EPC ratings after the build, especially at the higher levels, so Woodley said developers were intending to offer these homes already at an elevated level, which in turn they could charge more for.

“As such, they are seeking the most cost-effective ways of building the homes to the highest EPC ratings possible,” he said.

Woodley said Shawbrook Bank was often having discussions with its developers on construction methods and their end goals.

In fact, he said developers were increasingly building properties with at least a B rating rather than a C, which was a real step in the right direction.

“However, it is difficult for developers, building homes with high EPC ratings is costly and ensuring profitability when material costs are so high is a tough task,” he said.

On top of this, Woodley said their finance costs were high at the moment, and then you also had property values sliding downward.

“Developers are being hit from all sides, so those that are pushing on and continuing to build homes with high EPC ratings should really be commended,” Woodley said.

How influential are EPC ratings in today’s market? Let us know in the comment section below.