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May 2021 | Buy-to-Let

Going green in buy-to-let

Jane Simpson is managing director of TBMC

In recent years, the environmental issues affecting our planet have taken central stage in the media, and many people have become increasingly concerned with their own carbon footprint.

There are many ways in which individuals might modify their lifestyles in an attempt to help fight climate change and protect Earth, such as switching to green energy suppliers, reducing international air travel, or using public transport and cycling.

There have also been incentives provided by the government by way of the Green Homes Grant scheme to help homeowners make their properties more energy efficient, although applications closed on 31 March 2021.

This scheme was also available to residential landlords, who could benefit from improving the Energy Performance Certificate (EPC) rating for the properties in their buy-to-let (BTL) portfolios.

Minimum efficiency

Since 2018, landlords have been required to comply with the Minimum Level of Energy Efficiency standard, which sets a minimum EPC rating of band E for residential rental properties.

From April 1 2020, landlords are now no longer allowed to let any properties that fail to meet this minimum standard, and may face fines for non-compliance.

There have also been recommendations to government by the Climate Change Committee that all homes in the UK should have an EPC rating of at least C by the year 2028, so there is rising pressure to improve the energy efficiency of housing stock in the UK to help fight climate change.

There is clearly motivation for landlords to make improvements to the energy efficiency of their portfolio, and it seems that some buy-to-let mortgage lenders are showing their support for environmental concerns by offering incentives for properties with a better energy performance rating.

Paragon Bank recently launched a range of green BTL mortgages for properties with EPC ratings from A to C. These products offer lower deposit options of 20% – 80% loan-to-value (LTV) – compared with a minimum deposit of 25% – 75% LTV – for less energy efficient properties.

Further advance

Paragon also offers a green further advance product to help landlords make improvements to properties with an EPC rating of D or below. Similarly, TMW is offering a green further advance product for making energy efficiency upgrades.

Other green BTL options include Foundation Home Loans, with a Green Reward remortgage product for applications where sufficient energy improvements can be demonstrated, and Keystone Property Finance, which launched a green BTL mortgage in April, which offers a 15 basis point reduction off the core range for properties that are five years or older with an EPC rating of A to C.

As there are mounting efforts to improve the energy efficiency of the UK’s housing stock, landlords are playing their part – either by choice or obligation.

There may also be more pressure on lenders to ensure that properties on their books meet the EPC requirements, so green incentives make sense for all parties involved.