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Energy efficiency in the private rented sector has been under a lot of discussion in the last few years, with much of the conversation dominated by questions about energy performance certificates (EPCs). The Government eventually changed its mind on raising the minimum energy efficiency standard for rented homes from E to C, leaving some to ask: what incentives are there for landlords to upgrade their properties? To find out, we spoke to Avinash Rajan, Proposition Director at Trustmark, the government-endorsed quality scheme for work carried out in or around homes.
Now that plans to raise the minimum EPC rating in the PRS have been scrapped, what is the incentive for landlords to improve the energy efficiency of their properties?
Incentives for improving energy efficiency can be sorted into two categories: soft incentives and hard incentives.
Soft incentives for landlords to carry out improvements include increased tenant enjoyment and a reduction of their energy bills. Increasing tenant satisfaction with the property can result in longer tenancies and more renewals. Lowering energy costs required to heat a home can help tenants manage their cash flow better, reducing their expenditure and lessening their risk of falling into rent arrears.
Although the Government has changed its mind on using the hard incentive of the Minimum Energy Efficiency Standard (MEES) to enforce changes, the need to improve energy efficiency will not go away.
The Department for Levelling Up, Housing and Communities (DLUHC) is running a consultation on updating the Decent Homes Standard from the social housing sector and applying it to the private rented sector. These standards say that homes must be energy efficient and warm for tenants. Avinash thinks that though the government won’t be enforcing energy efficiency through a stricter MEES, it may use the Decent Homes Standard instead.
Avinash notes that good insulation is a key part of making energy efficiency improvements. Without good insulation, new low-carbon technologies such as air source heat pumps won’t work. Good insulation needs ventilation to work properly. Without good ventilation, the home gets warm, producing condensation and mould — a hazard to tenants.
There is increasing evidence in the space that green efficiencies increase resale value. Rightmove released research suggesting that improving a home from a low EPC band to C can increase value by up to 15%.
So, even though regulations do not currently require it, it makes sense for landlords to continue to invest in their properties’ energy efficiency. Not necessarily for asset value increase, says Avinash, but for asset value preservation.
What about green mortgages?
Green mortgages are a new and evolving space, and banks are still testing the waters. Currently, around 60 providers offer some type of green mortgage product. Broadly speaking, there are two types: preferential interest rates for new customers and cash rewards for existing customers.
For new customers, banks may offer a lower mortgage rate when purchasing a home with a good EPC rating. Interest increases over the last few years have enabled banks to create a tangible difference between standard mortgage interest rates and green mortgages.
For existing customers, certain banks are offering cashback schemes when homeowners make green home improvements. Barclays, for example, offers up to £2,000 depending on the improvement type.
Different banks will offer different rates of interest and cashback schemes, so it’s worth shopping around, but the bottom line is that banks will be taking into consideration the EPC ratings of properties they lend to.
Research from Iress says that 91% of mortgages in 2023 were brokered. This means banks must ensure mortgage brokers are educated enough to talk to their clients about green mortgages. The Green Finance Institute has introduced a Lender’s Handbook to help with this.
Apart from green mortgages, what funding options are available for those wanting to make energy efficiency improvements?
There are a number of government schemes that provide funding. Energy Company Obligation (ECO) is designed to tackle fuel poverty and help reduce carbon emissions. It places an obligation on medium and large energy suppliers to help those considered to be in fuel poverty heat their homes by reducing energy usage. This could be through measures such as installing insulation or upgrading a heating system.
Properties with EPC ratings of D to G could also benefit from the Great British Insulation Scheme. This allows certain homes to receive insulation for free or at a reduced cost, depending on their council tax band.
The Boiler Upgrade Scheme offers grants for fitting low-carbon technologies such as ground-source or air-source heat pumps. It offers up to £7,500 towards an air source heat pump, £7,500 towards a ground source heat pump (including water source heat pumps and those on shared ground loops) and £5,000 towards a biomass boiler.
Homes that are not served by the main gas grid can benefit from the Home Upgrade Grant (HUG). This helps both qualifying homeowners and private renters to improve the energy efficiency of their homes through measures such as insulation and low-carbon technologies.
Trustmark has a guide to energy efficiency schemes, including these and a few others, on their website.
How can agents and landlords find suitable retrofit installers?
The most important thing while finding installers, notes Avinash, is to ensure the person or organisation you are looking for is competent and qualified. Trustmark is a government-endorsed quality scheme for any work carried out in or around a consumer’s home. They also do quality assurance on works that are carried out, ensuring they meet standards through onsite inspectors and auditors.
All work carried out by Trustmark installers is stored in a database. When a home is purchased, this work will show up as part of an audit trail during the conveyancing process.
Another way to find qualified installers is through the Microgeneration Certification Scheme (MCS), which oversees installers of low-carbon energy technologies and contractors, such as heat pumps, solar, biomass, wind and battery storage. If you wish to take advantage of the Boiler Upgrade Scheme, you must use MCS-qualified installers.
Trustmark has provided a guide for homeowners (including landlords) about how to make home energy improvements. You can download this here.
Stuart Armstrong
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