At Paragon Bank, we support the move towards more energy-efficient homes, recognising the benefits this brings not just for the environment, but for tenants and landlords alike.
Greener homes mean lower bills and better living conditions for tenants, while landlords see increased property value and futureproofing of their investments.
But the regulations proposed by the Government can amount to sizable barriers to realising these benefits. Responding to a Department for Energy Security and Net Zero (DESNZ) consultation on the proposals, we have detailed a number ofimportant considerations and offered solutions.
One of these is the scale of the issue.
English Housing Survey figures highlight how landlords have driven substantial improvements in the energy efficiency of PRS homes, with the proportion of EPC A-C rated properties more than doubling from 23% in 2013 to 48% by 2023. While this effort should be acknowledged, it means that a sizable proportion of properties don’t make the proposed grade, particularly in the North and Midlands that have lower concentrations of energy efficient homes.
Considering this, we start to see why the timescales are unrealistic and proportionally so.
If we imagine that the policy is put in place on 1 January 2026, we have 504 working days to 1 January 2028 and 1,008 to 1 January 2030. Dividing the almost 3 million PRS homes estimated to be below EPC C by 504 days, we see that just under 6,000 properties would need to be upgraded per day by 2028 or just short of 3,000 a day over the 1,004 working days to 2030.
Another important factor is the profile of PRS stock which comprises some of the most challenging property types to retrofit. These older, terraced housing and leasehold flats often require complex works with limited access to external improvements.
This is clearly a tall order, especially when we consider the relevant skills shortfall and supply chain issues which are exacerbated by competition for resources from the Government’s revised target of delivering 1.3 million new homes over this parliament.
To address these issues Paragon has made two recommendations.
The first is a phased introduction, with a 2030 deadline for achieving EPC C or above for new tenancies, 2033 for extended tenancies and 2035 for all.
The second is a complementary skills and training programme to ensure sufficient numbers of trained individuals to carry out the necessary works.
Also responding the Government’s consultation, UK Finance, the financial services trade association, have highlighted datasuggesting that minimum EPC C won’t be achievable across the BTL mortgage sector until between 2037 and 2043without these measures and financial support for landlords.
The Government has postulated that the £10,000 cost cap proposed as part of the Conservatives’ previous proposalscould limit the effectiveness of the reforms so has suggested raising the cap to £15,000.
Instead of failing to drive positive change across the market, it is likely that a higher cost cap will have a disproportionate effect, with the oldest stock, which would likely need substantially higher investment, being disposed of. This financial burden would make these properties far less attractive to other landlords, meaning they’re likely to enter the owner-occupied sector where there is no regulation or policy to drive improvements. Instead of solving the issue, it is simply being passed on.
And, even if the Government’s estimates of the average cost of upgrading at £6,100–£6,800 are accurate, retrofitting remains a significant outlay, particularly for portfolio landlords.
In order to reduce the upfront cost and reduce the risk of landlords exiting the market earlier than needed, we recommend the Government provides financial support. This could include expanding grant schemes like the Warm Homes Grant, introducing tax incentives and government-backed low-interest loans, as well as adopting the £10,000 investment cap proposed in the previous consultation, with a five-year exemption.
These are just some of the key aspects of the proposed policy that we think the Government needs to focus on, with recommendations for amendments across other areas of the consultations.
Making up almost a fifth of the UK’s housing stock, the private rented sector (PRS) will play a vital role in achieving Government’s net zero 2050 target. If we’re to succeed in delivering the necessary positive change, policy must match ambition with practicality.
Louisa Sedgwick is Managing Director of Mortgages, Paragon Bank
