Buyers are calling for price cuts on homes with low EPC ratings
Greener properties are very much on homeowners’ minds at the moment given the continued increases to energy bills, particularly with the price cap expected to rise again in October, and then again in January.
The Rightmove Green Homes report recently found that buyers are calling for price cuts on homes with the lowest energy performance ratings as they become more conscious of the green features of buildings.
“This finding falls in line with our view that development finance lenders must support the path to net zero,” said Roxana Mohammadian-Molina (pictured), chief strategy officer at Blend Network.
Mohammadian-Molina explained that from Blend Network’s borrowers’ perspective, environmental performance and ESG credentials can help property developers improve sales or attract better tenants who are increasingly seeking efficient, healthy, and green-certified buildings to live and work in.
Overall, she said incorporating ESG factors can lead to increased profitability through higher property values, attracting more and better tenants, as well as improved returns on investment.
Read more: Energy prices expected to rise further than predicted – what does it mean for mortgages?
“We strongly believe that specialist development finance lenders must join in the sector-wide plan for meeting climate, nature and wider environmental goals and helping build sustainable, eco homes,” Mohammadian-Molina added.
Craig McKinlay, new business director at Kensington Mortgages, explained that the business had heard anecdotal indications of a surge in landlords buying new build properties, as these are typically ‘A’ and ‘B’ rated, so as to avoid the Energy Performance Certificate (EPC) issue.
“Indeed, the lower the EPC rating, the more expensive the costs to upgrade, and the more likely some landlords will sell, as it will be more financially viable to do so,” he said.
In turn, McKinlay said this frees up properties for first-time buyers.
“However, a key risk and consideration is people realising this could be a big task to take on, and poorly rated properties could be passed round the market like a ‘hot potato’ rather than making the required improvements,” he said.
Read more: Green improvements to become major factor in asking prices
As such, McKinlay pointed towards products like Kensington Mortgages’ eKo Cashback Mortgage, which encourages buyers to improve the property’s existing energy efficiency rating by either upgrading to the next EPC banding, or increasing by at least 10 SAP points, after which buyers receive £1,000 cashback.
“Speaking with a mortgage broker and getting tailored advice will help buyers make a decision on what is right for them,” he added.
Maeve Ward, director of commercial operations at Mercantile Trust, explained that landlords will need to assess how much the costs across the portfolio would be to do all the work required, and then establish how the money for this might be released.
“Options could include using a homeowner business loan, a traditional second charge, a second charge bridging loan, or a second charge buy-to-let,” Ward said.
She added that landlords will also need to calculate what the benefit of doing the work might be. For example, she questioned whether there will be an uplift in rent, as the property could be more desirable to tenants dealing with the cost-of-living crisis.
“There will also be an opportunity for investors. There will almost certainly be landlords who decide they do not want the hassle of doing the necessary works and so offload stock at auction,” Ward outlined.
Those who have the finance ready, she explained, could purchase undervalued property, and then refinance with the uplift in value, post EPC work, or sell for a profit, she explained. Alternatively, she noted that it could be an option for a first-time buyer.
“Finally, another consideration is that properties with an EPC of A-C could qualify for cheaper rates in the future; many lenders are offering discounts for more energy efficient properties,” Ward concluded.
