EPC targets come back, all is forgiven

April 22^nd marked ‘Earth Day’, yet it seemed to pass relatively unnoticed within the mortgage market.

While the market was once abuzz with talk of green mortgages and Energy Performance Certificates (EPCs), that enthusiasm has waned somewhat since Prime Minister, Rishi Sunak, scrapped compulsory EPC targets for landlords last September.

It is fair to say that when the targets were in place, there was some dissatisfaction about them—not just from landlords but also from within the industry. However, their absence is arguably generating more discontent, with some in the industry longing for their return.

Recent research from Mortgage Advice Bureau (MAB) seems to sum up the mood, with its findings showing some mortgage lenders and advisers would welcome a reversal of the decision.

Point of the U-turn

Less than six months after Sunak announced his u-turn, almost half (49%) of mortgage lenders and a third (32%) of advisers asked by MAB said they would like to see a reversal of the EPC changes, whether by the current or any newly-elected Government.

While the plan to make landlords upgrade their properties to an EPC rating of C by 2025 for new tenancies and 2028 for existing ones was always optimistic, investment had been made and plans were well underway by many lenders and landlords, up until the point of the u-turn.

Perhaps in anticipation of what will undoubtedly still come further down the line, some landlords are still pressing ahead with plans. Recent research by Paragon Bank shows almost four in 10 (37%) portfolio landlords are continuing to upgrade their properties to an EPC rating of C or above.

28% expect to achieve this goal across their portfolios within one to two years, 22% within three to four years, 18% within the next 12 months, and a similar percentage (17%) in five years or more.

However, some landlords are more reluctant to upgrade their properties in the absence of direction from the Government, with 16% postponing undertaking any works until legislation mandating EPC C or above is introduced.

Progress being made

While the situation might be somewhat foggy within the residential and private rented sector, there are at least some promising developments within social housing, where retrofitting is moving at a faster pace thanks to the Government’s £3.8bn Social Housing Decarbonisation Fund (SHDF).

This fund is designed to improve the energy performance of social rented housing over a 10-year period. The scheme is in three waves, with Wave 1 launched in August 2021 and Wave 3 due to be launched this summer.

Like most Government schemes, early indicators suggest Wave 1 will likely fall short of its target. Nevertheless, it represents a step in the right direction and can hopefully help provide a blueprint for what could be achieved in the wider housing stock.

Wave 1 has so far delivered around 27,000 ‘measures’ in 14,100 households. Given the scheme is winding down and we are moving into phase two, it is unlikely the 20,000 households target will be achieved.

The numbers are still quite impressive though and so far include 16,000 insulation ‘measures’, marking 59% of the work undertaken, 5,700 upgrades to windows and doors such as double or triple glazing accounting for 21% of measures, and 3,800 electricity-related measures like solar PV accounting for 14% of measures.

Starting point

So far Wave 2 has delivered around 4,500 ‘measures’ in approximately 2,500 households. Waves 1 and 2 of the scheme adopted a ‘worst-first, fabric-first, least regrets’ approach to retrofitting and it is hoped Wave 3 will see more extensive retrofitting, such as air source heat pumps.

It’s a shame such a fund has not been opened up to landlords in the private rented sector. I imagine there would have been a huge uptake judging by the mood of the market.

Nevertheless, it is hoped the SHDF scheme will demonstrate the potential of the fabric-first model. While heat pumps and solar panels have their place, there is still a lot that can be achieved through insulation, which may not entirely solve the problem but is a good starting point.

While it’s unlikely we will see a direct reversal of the EPC rules, especially before the next general election, it remains the case that something needs to be done to upgrade the UK’s housing stock. Let’s hope the Government can draw some inspiration from the SHDF scheme.