Good EPCs won’t help landlords achieve better capital appreciation

With landlords under pressure to improve energy efficiency, a new report suggests that even significant improvements in EPC levels won’t be rewarded when investors sell up.

A new survey by Nationwide shows that there’s just a 1.7 per cent house price premium on homes with EPC ratings A or B compared to a D-rated property.

Those homes rated F or G attract a 3.5 per cent discount compared to a similar D-rated property.

“Decarbonising and adapting the UK’s housing stock is critical if the UK is to meet its 2050 emissions targets, especially given that the housing stock accounts for around 15 per cent of the UK’s total carbon emissions” says Andrew Harvey, Nationwide's senior economist.

“We included energy efficiency ratings from energy performance certificates alongside the usual property characteristics data we use in our House Price Index. This allowed us to control for other factors that can influence the value of a house or flat and isolate the impact of energy efficiency ratings alone.

“Our analysis suggests that a more energy efficient property rated A or B attracts a modest premium of 1.7 per cent compared to a similar property rated D, the most commonly occurring rating. There is a more noticeable discount for properties rated F or G - the lowest energy efficient ratings.

“Overall, our research suggests that, for now at least, energy efficiency has only a modest influence on house prices for owner occupiers, where an impact is only really evident for the best and worst energy efficiency ratings.

“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.”

A Bill introduced into both Houses of Parliament in July ramps up the pressure on the private rented sector to become more energy efficient.

The Minimum Energy Performance of Buildings Bill is described by its supporters as being vital for the achievement of ‘net zero’ which means that the amount of carbon dioxide added by the country is no more than the amount taken away as a result of significant reductions in emissions. 

Backers of the Bill say it will help the government see that all private rental homes are EPC band C or below by 2028, and that all homes - including owner occupied ones - should be EPC band C by 2035. In addition mortgage lenders should ensure an EPC band C average for their portfolios by 2030.

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