Landlords who own green buy to lets (BTLs) with an Energy Performance Certificate (EPC) rating of A or B enjoy higher rents and command a price premium of almost £20,000 when they sell up, analysis finds.
Furthermore, it would take a landlord five years on average to recoup the costs of upgrading a property to an EPC rating of C, according to a study by The Mortgage Works (TMW).
But with 16% of landlords surveyed stating they are not willing or able to invest in their properties, sentiments echoed by a survey carried out by Shawbrook, TMW is calling on the government to offer more incentives to support energy-efficiency improvements of BTLs.
The study carried out by the lender found that the value of homes with an EPC rating of A or B, the two highest ratings, was 10.9% (£19,500) more than the equivalent property with a D rating – the most common rating in the UK.
Improving a property to a C rating will attract a 3.4% (£6,200) premium.
The BTL price premium is significantly more compared to an owner-occupier property, where an A- or B-rated house in England only attracts a 2.2% (£6,500) premium.
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Green rental premium
Being able to charge higher rents is another benefit of letting out greener properties, the study found.
Rental income can be improved by up to 7%, the equivalent of an extra £70 per month.
Properties with an energy performance rating of C attract a smaller premium of 2% or £20 per month.
Location matters
The extent of the rent and property price green premium varies depending on where in the country the BTL is situated.
The North of England attracts the biggest house price premium of 15% for an A- or B-rated BTL and 4.8% for a C-rated property. In the South of England, the premium is considerably lower at 5.6%, while it is 2.9% for a C-rated home.
London landlords enjoy the greatest rental income premium, with A- and B-rated properties attracting 12% higher rents than a similar D-rated property.
A C-rated property in the capital could command a 3.8% rental income boost.
The North of England and the Midlands both have an 8% premium for A- and B-rated properties.
Energy efficiency appears to have a modest impact on rents in the South of England, which only sees a 3% premium.
EPC deadline looms
With the 2030 deadline looming for all rental properties to have an EPC rating of C or above, Nationwide wants to see grants given to improve properties that are the hardest to retrofit, while enabling retrofitting costs to be offset against rent for income tax purposes.
Dan Clinton, head of BTL at TMW, said: “Our analysis shows there can be long-term gain with green retrofitting through increased property value and improved rental yields. But it will be a hard slog for many landlords to meet this ambitious timeline to bring their homes up to spec, particularly those who have had to absorb higher mortgage rates and bigger tax bills in recent times.
“We need government to step up and provide the necessary support for landlords if they expect that change to happen.
“As history shows us, positive change can be painstakingly slow when there [is] a lack of incentives. Alongside this, there needs to be an effective framework for energy efficiency, including clarity around the future of EPCs, information on energy-efficiency improvements and skills training to ensure there is a workforce able to deliver green improvements at scale.”
