Impact of EPC rules on house prices ‘limited’

The government’s green targets for UK homes are having a “limited impact” on house prices for now despite fears they could create another wave of mortgage prisoners.

Research published by Nationwide found the house price premium on a property with an energy performance certificate rating of A or B is just 1.7 per cent, compared to a D-rated home.

Whilst properties with an F or G rating attract a discount of 3.5 per cent.

Since April 2020, all buy-to-let properties have had to have an EPC rating of E. But the government wants to raise this requirement to an EPC rating of C from 2025.

This is due to the fact UK housing stock accounts for around 15 per cent of the country’s total carbon emissions, according to the Climate Change Committee – an independent body which advises the government.

The 2025 regulation change will affect more than half (58 per cent) of UK homes, which has prompted fears valuers might start labelling properties under an EPC C rating ‘unmortgageable’. 

“We could find ourselves in another mortgage prisoner situation,” Emma Cox, Shawbrook Bank’s head of sales, told FTAdviser. As of 2019, 40 per cent of housing stock is now rated C or higher, up from 14 per cent of the stock in 2009, according to latest government data. 

This means around 60 per of the UK’s housing stock is still rated D or below.

But Nationwide’s data suggests the impact of the rules on the value of buy-to-let properties is, at least for now, minimal.

“There is a more noticeable discount for properties rated F or G – the lowest energy efficient ratings,” Andrew Harvey, Nationwide’s senior economist, explained.

“Overall, our research suggests that, for now at least, energy efficiency has only a modest influence on house prices for owner occupiers, where an impact is only really evident for the best and worst energy efficiency ratings.  

“However, the value that people attach to energy efficiency is likely to change over time, especially if the government takes measures to incentivise greater energy efficiency in future to help ensure the UK meets its climate change obligations.”

Data released by the Office of National Statistics suggested the government’s green homes initiative could cost landlords a collective £21.5bn. This works out to £7,646 per privately rented property.

With government finance for the home improvements now withdrawn, many landlords have found themselves ‘stuck’ with no spare cash to meet the EPC target.

Cox said in early August that more needs to be done to bring about an awareness of the impacts of landlords not changing their properties’ ratings. 

“We need to go deeper and broader to help landlords improve the housing stock,” Cox urged. “These assets will stick on any banks’ balance sheet, because there is a risk of them becoming unmortgageable and unrentable.”

Some banks are trying to help buy-to-let investors make the changes through financing. In mid-August, Barclays and HSBC funnelled £150m into buy-to-let fintech lender Lendinvest to help landlords make property improvements, with a particular focus on bringing homes up to an EPC rating of C.