Maeve Ward considers the implications of changes to the Energy Performance Certificate requirements and the lending solutions available
The following article is supplied by Mercantile Trust.
Industry research can be extremely enlightening and beneficial. Speaking from a lender perspective, understanding what brokers and their clients really think helps to shape our strategy so that we can provide better products and services to our customers.
Changes to Energy Performance Certificate (EPC) requirements are due to come into force in 2025, when all properties covered by a new tenancy agreement will need an EPC rating of C or above, with all rental properties needing meet this standard from 2028. That’s why Mercantile Trust recently surveyed brokers to gauge their awareness (and that of their clients) to these proposed EPC changes.
It is concerning to report that nearly half (48.5%) of brokers aren’t confident that they fully understand the government’s proposed new rules, while a similar amount (49.2%) say that their property investor clients have not asked them for any information on the EPC regulatory changes.
Our research also revealed that 60% of brokers have not arranged a bridging loan to finance energy efficiency-related refurbishments over the past year but that 66% predict they would do more business in this area over the coming 12 months.
Crucially, nearly 70% of brokers surveyed want to see more lenders providing specific lending solutions for clients seeking to improve the energy efficiency of their properties and they weren’t shy in providing examples of what could be done - largely around incentivised pricing/LTVs, as well as relaxed criteria and affordability checks.
In this regard, what was most noticeable was that a number of things on the brokers’ wish-lists are actually available right now. For example, there was a request for more flexibility on short-term loan amounts for EPC refurbs, as they often do not require large amounts. At Mercantile Trust, we currently lend £10k+ on a buy-to-let term or £25k+ on a bridging loan (with no minimum term on the bridge).
Similarly, it was suggested that lenders allow landlords to have a rental break while EPC-related works are being carried out. Our policy enables borrower’s that can evidence they can cover the rental void period while the works are being carried out, without the need for it to be tenanted. The works need to be complete over a set period and ready for rental within that timeframe with an AST submitted to lender to evidence.
Other brokers asked for products which incentivise EPC works to be undertaken, rather than afterwards via a ‘green mortgage’. Well, short-term lender Glenhawk actually offers an end-of-term discount to borrowers who complete light or medium refurbishments and improve the EPC rating of their property. They are then eligible for a discount of up to 0.25% in achieving an EPC rating of C, or 0.50% for a rating of B or higher.
Another popular proposal was for a revolving credit facility to pay for EPC refurbishment. Experienced property landlords already have access to Mercantile Trust’s drawdown product, which allows them to secure a pre-agreed lending limit against an unencumbered asset which they can then draw down on over an 18-month period, paying interest on the amount drawn at any one time. Equally we offer a homeowner business loan (HOBL) product which enables property professionals to release equity from their main residence for business purposes. This is ideal when there may be several properties in a portfolio that require remedial work to enhance the EPC. The exit is generally the sale of an asset or a refinance of a property within the portfolio when rates are more advantageous as the new EPC provides access to potential green mortgage ranges in the market.
Raising awareness
A key takeaway for lenders who offer products to the landlord and property investor community is that we need to work harder to get the message out there – both on EPC rules and ways to fund energy efficiency improvements – as there are solutions out there to help landlords upgrade their properties but brokers don’t necessary know this.
That’s why Mercantile Trust has partnered with Elmhurst Energy to create a free EPC Hints & Tips guide for landlords and property investors. The guide helps landlords create a plan of action, establishing what needs to be done to each property within their portfolio in order to secure an EPC rating of ‘C’ or above, what the likely costs are to do so and where the financing can come from. We encourage brokers to download the guide and share it with their property investor clients.
Everyone in the industry needs to continue to work hard to ensure we collectively meet the demands of the changing regime surrounding energy efficiency; that includes promoting to brokers those products and features which make the job that much easier.
You can download the guide here.
Maeve Ward is director of commercial operations at Mercantile Trust
