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‘£330bn bill to make UK homes energy efficient’

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The cost of bringing UK homes up to the energy efficiency standards targeted by the government is £330bn, according to new estimates that suggest homeowners and landlords face big bills and long payback times when making recommended improvements to their properties.

Ministers want all homes by 2035 to reach a minimum level “C” on a system of energy performance certificates (EPCs) that runs from A, the most efficient, to G, the least.

Landlords face a tougher timescale. The government wants them to ensure homes reach level C or better for new tenancies by 2025 and by 2028 for all tenancies, estimating this would deliver savings of £220 a year on tenants’ utility bills. The sector is awaiting a government response to a consultation on the matter, which closed in January.

As the UK this week hosted the international COP26 climate summit, estate agency Savills published research calculating the impact of recommended improvements to the energy efficiency of homes, including insulation, double glazing and replacing gas boilers, as well as low-energy lightbulbs and draught proofing.

One-fifth of all UK carbon dioxide emissions are accounted for by residential homes, it said, with 70 per cent of this coming from heating. The age of the UK’s housing stock is a key factor, since 30 per cent of homes built in England and Wales before the second world war carry an EPC rating of E or below, and 47 per cent of those built before 1900.

But it said the relatively high cost of making large-scale improvements to properties acted as a disincentive to owners.

“The payback on many energy improvements remains unattractive, even if grants can be accessed to underwrite some of the cost. The estimated cost of upgrading a home with an EPC D rating is £6,472 — but with an average annual cost saving of £179, it will take 36 years to pay back the initial investment, according to the English Housing Survey,” Savills said.

The National Residential Landlords Association, which represents landlords, has called for more government help for landlords in meeting the EPC level C target.

It pointed to data from the official English Housing Survey showing that one-third of private rented properties were built before 1919, a larger share than for any other type of tenure. Four out of five pre-1919 properties in England had an energy rating of D or worse.

Landlords would spend an average of £4,700 per property to attain EPC level C, according to government estimates that assume a maximum cap of £10,000 on landlord costs — its preferred policy option. But the NRLA said the proposal would remain “a pipe dream” since the average net annual rental income for a private landlord is less than £4,500.

The government scrapped its Green Homes Grant scheme in March, but grants of £5,000 will be available to owner-occupiers and landlords to replace gas boilers with greener systems such as heat pumps, according to its Heat and Buildings Strategy published last month.

A poll this year of 750 landlords by the buy-to-let lending arm of Nationwide found that 35 per cent of landlords were “not confident” they would be able to bring their properties up to the required standard, “not only due to a lack of available capital but also a lack of awareness regarding what it takes to achieve that C rating,” it said.

Mortgage lenders have introduced green finance initiatives in recent years, offering discounts or better terms to borrowers on homes meeting high levels of energy efficiency.

First-time buyers with Nationwide can receive as much as £1,000 cashback if they take out a home loan on a property that carries the highest EPC A rating. Halifax offers all types of mortgage borrower £250 cashback if buying a home with an A or B rating.

However, Savills cautioned that government measures would need to go further to address the high proportion of housing stock that seldom comes to the market.

Lucian Cook, residential research director at Savills, said: “With the government likely to impose EPC targets for lenders, the cost and terms on which mortgage finance can be obtained have the potential to change the equation for those with a mortgage. However, even this will not go far enough. More than 10m homes are owned outright — increasing by 1.6m in just the past 10 years. These homes are typically older, less energy efficient and change hands infrequently.”

There is little evidence yet that tougher EPC rules could lead to a surge in negative equity, should properties come to be regarded as unmortgageable. Nationwide research this year found a price premium of 1.7 per cent for homes with a more energy efficient rating of A or B, compared with similar homes at level D. A greater discount of 3.5 per cent applied to properties with an EPC level F or G, compared with level D. 

Andrew Harvey, Nationwide senior economist, said energy efficiency had had only a modest impact thus far on house prices. But he added: “However, the value that people attach to energy efficiency is likely to change over time, especially if the government takes measures to incentivise greater energy efficiency in future to help ensure the UK meets its climate change obligations.”

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Letter in response to this article:

Renovating buildings will help reduce energy bills / From Monica Frassoni, President, European Alliance to Save Energy, Brussels, Belgium

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