Will your mortgage company require you to improve energy efficiency?

I was chatting to a landlord a month or so ago (not one of our clients, he prefers to do things himself). He was telling me the story of his tenant who had asked whether he (the landlord) would consider installing loft insulation. The reason for this was that during the winter they were paying over £200 a month in heating bills. You are probably thinking that the landlord took a sympathetic approach at this point. Nope.

Indeed his response was that if they wanted loft insulation, they should put it in themselves. I have to admit to being rather taken aback by this attitude. His reasons were that there was no measurable benefit to him.

At this point I felt the urge to raise the question of whether this was a morally acceptable decision, quite aside from the legislative reasons. For me, and all of us at Stuarts Residential, the view is that if you can help your tenant, you should. A happy tenant stays longer, looks after your property and pays their rent on time and in full.

There is a very strong argument that the landlord should have agreed. The Housing Health and Rating System Regulations 2005 list excess cold as one of the prescribed ‘matters and circumstances’. This means that a landlord must ensure the tenant is not exposed to low temperatures. There is also the general duty of a landlord to maintain their property in good repair, and these days that would fall under the Homes (Fitness for Human Habitation) Act 2018. Surely the measureable benefit is the fabric of the property is improved and protected, the tenant will have less monthly outgoings and it will be easier to let again in the future.

Where we as Agents can add value, is to give landlords this knowledge and also point them in the direction of help. For this landlord I was able to suggest that they consider talking to the Energy Saving Trust who can offer advice on the best options and whether there is any funding available.

I was reminded of this conversation recently when I was researching for some training content around Energy Performance Certificates and the Minimum Energy Efficiency Standards.

The future of EPC’s is particularly high on the Governments agenda with a recent consultation which they ran at the end of last year. This consultation was part of the Green Finance Strategy published in 2019. As part of this a consultation document was issued in November 2020 which calls for mortgage lenders to support people in improving energy performance of their homes.

The idea is that lenders will be required to report annually EPC grades of all of the properties on which they lend. Targets will then be set for lenders to improve average ratings across their portfolio of mortgages.

The potential consequence of this is that lenders will refuse to lend on properties with a lower rating and already we see some ‘Buy To Let’ lenders refusing to lend on properties with ratings on the cusp of the MEES standards (F or below).

There is plenty of reason to assume this will expand into the rest of the market. And lenders may consider the additional costs of energy for a lower rated property in their affordability criteria when considering whether to lend. It is also likely that lenders will then offer additional borrowing products to help landlords increase energy performance.

This very week in fact, Paragon Mortgages have released a new product for landlords with EPC ratings of A-C. It is clear this is the direction of travel so I’m sure others will follow.

Building Renovation Passports are a proposal to replace EPC’s. Some European countries are already using them. A report by the Green Finance Institute have suggested they should be adopted in the UK

They are a digital log book which contain information about the property, it’s operation, performance and historic renovations AND a long term renovation road map to identify retrofit measures to improve energy performance. The report also highlights the need to involve mortgage lenders and makes it clear that mortgage valuers and surevyors will need to consider the energy efficiency of a property when providing a valuation for a property.

It is always tempting to worry about these things when they happen, but it seems very clear that this not just a pie in the sky idea. Indeed there are some real changes heading our way in the next five years. And that is not far away.

Please note the date this article was published as the law may have changed since it was posted. You should always seek independent legal advice if you are intending to rely on any of the contents.