Greening the UK housing market, net zero carbon emissions and other environmentally friendly topics have been flooding the news lately. This is due to UK Government being the first major economy to set a net zero emissions law. The law requires the UK to bring all greenhouse gas emissions to net zero by 2050.

In November 2021 COP26 was held in Glasgow, where the world’s leading politicians gathered to discuss all things Green. And once the Government began drafting new legislation for the UK housing market, all things Green came far more to the forefront of my attention.

You may recall that since April 2020, all Buy-to-Let properties had to have an EPC rating of E. But the government now wants to raise this requirement to a minimum EPC rating of C from 2025. It’s being proposed that ratings should rise to C or above for all newly rented properties on the market from the start of 2025. Changes would be phased in, with existing tenancies given until 2028 to comply. This maybe due to the fact that data from 2020 shows that the residential sector accounted for 20.8% of all carbon dioxide emissions in the UK. And according to data from the Department of Levelling Up, Housing and Communities, there are close to 13 million homes in England and Wales currently with an EPC rating of D or below.

Once the regulations are updated in 2025, the penalty for not having a valid EPC could also rise from £5,000 to £30,000. This is to help enforce the changes as swiftly as possible. However, this may leave a lot of landlords in a difficult situation as Rightmove analysed data from the the Ministry of Housing, Communities & Local Government, to show that 1.7 million homes cannot get to an EPC rating of C, no matter what upgrades the property gets. This could suggest that the government may need to make exemptions for these properties once, the legislation has fully passed through parliament.

I had a look at various EPC certificates on the government database. In some of the cases, the cost to upgrade a property came in at around £15,000, however, the annual saving on the utilities was only £600, so it would take 25 years to recoup the cost of the upgrades in these scenarios.

The question I’m asking myself is, what could this potentially do to the Buy to Let sector? Will landlords start disposing of properties to reduce their exposure to potentially expensive changes? Are landlords aware of these changes coming in? If they are looking to buy more properties, are they aware they may have a significant outlay, to upgrade their portfolios to the minimum level required by Government?

You will have seen various lenders introduce “Green Mortgages” over the past 18 months. These lenders are getting in early, not only to help support the environment but also to improve the average EPC rating of their back book, by attracting more A & B properties.

Part of the Government proposed legislation says that by 31 December 2030, mortgage lenders must ensure that the average energy performance level of their domestic portfolios is at least EPC Band C.

Given the above lender targets, it has triggered concerns within the industry that the new measures could increase the number of mortgage prisoners.

Skipton Building Society are putting a lot of focus on Green Mortgages and aim to help consumers improve the energy efficiency of their properties in the future. We have a working group dedicated to producing products, amending policies, and educating customers on this topic. At the time of writing this, we have just launched Green Additional Borrowing products, with a reduced minimum loan of £5k (versus standard Additional Borrowing which is £10k), as long as 50% of the loan amount is to be used to upgrade the property to be more environmentally friendly. In addition to this, we have already relaxed our policy for properties with Solar panels, Wind Turbines and Biomass boilers. And the team are now exploring if we can make affordability enhancements and product enhancements for A or B rated properties.

Our overall goal at Skipton is to not only provide products and services to help make homes greener, but to educate our customers and brokers on the government legislation and what changes could be made to properties to ensure they comply. I’m proud to speak within the industry on this topic and I’m glad to say that I’ve hosted 5 webinars on green issues, to over 100 mortgage professionals and I have another few lined up over the coming weeks (so you might be hearing more from me soon)!