The UK was the first major economy to create a legally binding target to bring greenhouse gas emissions to net zero by 2050. The British government is committed to ambitious decarbonisation measures across all areas of society, and focuses its strategy on areas including power, fuel supply and hydrogen, industry, transport, natural resources, greenhouse gas removal, and heat and buildings. But what will these changes mean for the current housing market, mortgages, and how will it affect buy to let investors?
As homes account for more than a fifth of the UK’s total CO2 emissions according to the department of Business, Energy, and Industrial Strategy (BEIS), the aim to create better energy performance certificates (EPC’s) for homes across the UK is a stable yet ambitious step towards the government’s net zero goal. As of 2025, all buy to let properties starting a new tenancy will require an EPC rating of C, and existing tenancies will have until 2028 to reach this requirement. From May 2021, local authorities in England and Wales can apply for funding from the Business, Energy, and Industrial Strategy (BEIS) department to support the minimum energy efficiency standards enforcement, set by the government.
Green mortgages are designed to encourage property owners to make energy efficient improvements to existing homes or purchase greener properties. They offer a financial incentive, usually a lower interest rate to encourage property owners to consider their environmental impact. The majority of green buy to let mortgages on offer require a property to have a minimum EPC of C, although some go further and offer more competitive rates for EPC A-B properties too. Since the first green mortgage ranges launched in the buy to let market in March 2021, the offering of its services has more than doubled, signalling that demand is high for such mortgage products.
The introduction of green mortgages is set to play a vital role in the future of property. The aim is to reward landlords and investors who have made an energy conscious choice to buy energy-efficient properties or improve those which they currently own.
Buy to let investors that already have a property portfolio of less energy efficient homes will be required to consider their options. Sticking with current property investments could cost buy to let investors significant sums of up to £30,000 to develop their properties to meet high EPC ratings. A recent study by Nationwide building society indicated that installing all the energy improvement measures recommended for homes currently rated F or G would attract the biggest cost, an estimated £25,800. For many buy to let investors with larger portfolios this could add up to become a significant cost – with many landlords opting to sell their less efficient stock and invest in more energy efficient options.
Many buy to let investors are opting to purchase new properties which are, on average, six times more energy efficient than existing homes, generating over 60% less CO2 emissions when compared to second hand homes, according to the New Homes Marketing Board. They are built to the latest environmental standards packed with efficient heating systems, double glazed doors and windows, plus high levels of roof, floor, and wall insulation. The government’s plans to reach net zero by 2050 suggest that these energy efficient changes will only increase, indicating moving towards the purchase of newer homes now, makes more sense than ever. Whilst this initially looks to be all about more costs to Landlords, the expectations are that upon upgrading, property will increase in value and rents will invariably rise. It is expected within established Buy To Let Lenders, that this, in the longer term, will benefit Investors and the industry is likely to see a rise in new Landlords coming to the market.
With aims to make positive steps towards net zero, while futureproofing the property market it appears that the green mortgage agenda is here to stay.
For mortgage advice on your buy-to-let portfolio please contact mortgages@bradleyhall.co.uk or call 0191 260 2000.
Your home or property may be repossessed if you do not keep up repayments on your mortgage. BH Mortgage Services Limited is an Appointed Representative of PRIMIS Mortgage Network. PRIMIS Mortgage Network is a trading name of First Complete Ltd which is authorised and regulated by the Financial Conduct Authority for mortgages, protection insurance and general insurance products. The FCA does not regulate most Buy to Let mortgages. The guidance and/or advice contained within this material is subject to the UK regulatory regime and is therefore primarily targeted at consumers based in the UK. Registered Address: BH Mortgage Services, 120 High Street, Gosforth, Newcastle Upon Tyne, NE3 1HB
