How exactly does an EPC rating impact the worth of a property? And why should potential buyers, sellers, and renters pay attention to it? In this article, we’ll delve deep into the relationship between EPCs and property value, shedding light on the tangible benefits of energy efficiency and its growing significance in the UK property landscape.
Table of Contents
- Correlation Between EPC Score & Property Value
- Why Buyers Value Energy Efficiency
- The Impact of EPCs on Rental Properties
- The Role of EPCs In Mortgage Values & Lending
Correlation Between EPC Score and Property Value
The UK government has commissioned research into the impact that an EPC score has on a property’s value. The comprehensive study surveyed 300,000 homes across England. When using band G as the base there was an increase in the value between every bracket. Many factors were considered when collating the results to balance the results. Potential variances such as age, type, number of bedrooms, tenure and location were all taken in to account.
Using G as the baseline, this is how much you can expect the price of a property to rise on average through the bandings.
The above figures are averages across all property types. If we take a look at some specific property types, there are a couple of surprises
- A terraced house with a band of C sells for nearly 16% more than a band G terrace house.
- The figure is 10% for semi-detached homes.
- Upgrading a band G terraced to a band F (1 banding) will add 7 percent.
Rural detached homes broke the mould of the study. These we the only property types that did not show an increase in property value as the EPC score rose. However, detached homes in more densely populated areas did rise in value with the EPC score.
Why Buyers Value Energy Efficiency
Demand for more energy efficient homes is evidently on the rise. The study cited above was from a few years ago now but I believe buyer preference is only trending in one direction. With mortgage interest rates rising and property costs at all time highs, buyers are looking to reduce their monthly outgoings other ways. Homes that use less energy to both heat and power is the obvious choice.
Whilst completing hundreds of energy performance certificates, I’ve had conversations with home owners about reducing their carbon emissions and the impact it has on the environment. Whilst this is not the top concern for many people, it certainly has a contribution to the rise in value of higher EPC rated properties.
The Energy Saving Trust commissioned a report that looked at how much more an individual was willing to pay for a home that had small scale renewable energy generation. It found that on average this figure was £3,500 in England.
The Impact of EPCs on Rental Properties
Currently the minimum energy efficiency standard (MEES) that rentals must meet is a band E on the EPC. Band G and F properties cannot be rented. Rental stock in these bandings will have a lower value than compliant homes. There is discussion about raising the MEES to band C, making anything lower unsuitable for renting. This is scheduled to happen in late 2025 and there is a bit of confusion coming from government departments whether it will be delayed or not. When it does happen, we’d expect to see homes in prime rental areas that meet the band C requirements to increase in price. Those that fall short, will fall in price.
Due to the lack of concrete information, confusion surrounding implementation dates and even whether it will happen at all, some landlords are already taking precautionary measures. We’ve had requests from landlords to update their EPCs. We’ve provided consultancy to show them exactly what they need to do to get to band C. Some landlords are spending money on upgrading their homes whilst others are leaving the market completely.
Those leaving the market are attempting to get ahead of a landlord exodus in the rental market and beating any drop in price of the lower EPC banding properties.
From what we know, landlords will be expected to spend up to £10,000 to make a home more efficient before an exemption can be requested. We’ve advised a few clients to install solar PV panels. This usually comes in below the £10,000 cap, has a significant positive impact on the EPC score and also allows the landlord to make use of the Smart Export Guarantee (SEG). By selling excess energy back to the grid through the SEG, landlords can begin to recoup the cost of the PV panel installation.
A property with a good EPC score with solar PV will attract higher quality tenants who are willing to rent for more due to lower energy bills. This seems like a win-win scenario for landlords and tenants alike.
The Role of EPCs in Mortgage Valuations & Lending
As the world shifts towards sustainable living and being environment conscious, lenders are beginning to take notice of EPCs.
Some lenders are factoring in EPC ratings when determining mortgage offers. A property with a higher EPC rating indicates to these lenders that the property is a safer investment. The assumption is made that these properties are in better condition, require fewer repairs, require fewer upgrades and will have a greater resale value due to them having more market appeal.
Other lenders are now offering ‘Green Mortgages‘. Preferential rates are offered to buyers of energy efficient homes or even those committing to upgrading their new home by making energy saving improvements. The concept behind this is based on the rationale that these buyers will have more disposable income due to lower energy bills. If a home owner has more disposable income, they are less likely to default, making them a safer investment.
EPCs are beginning to play a pivotal role in the UK housing market. Their usefulness extends beyond a compliance box ticking exercise, they have a direct impact on the value of homes. Demand for energy efficient homes is growing and homes with higher EPC scores, not only attract more buyers or tenants, they command a higher price. This is further emphasised by mortgage lenders consulting EPCs as part of a lending decision. The potential shift in minimum energy efficiency standards for landlords should underline the importance of energy upgrades to maintain or even enhance property values. If you are looking to sell, buy or rent, EPCs and energy efficiency are not about saving the planet, they’re also about enhancing the value of your property.