Could Britain’s Victorian housing stock see values plummet if government pushes though EPC regulation – and should owners be worried just yet?
The government is on a mission to retrofit the UK’s ageing housing stock – which accounts for roughly 20 per cent of the nation’s CO2 emissions.
Its current aim is to have as many homes as possible reach a C rating by 2035 in England and Wales, with an even earlier target being set for private rented homes.
This is a worry for homeowners living in Britain’s Victorian housing stock, which could lose some of its value if further energy efficiency regulations come into force.
EPC is a rating scheme which bands properties between A and G, with an A rating being the most efficient and G the least efficient
At present, about three in five homes have a D rating or worse, according to Rightmove.
However, ONS data shows that those built before 1900 have an E rating on average, thanks to their poor insulation and lack of double glazing.
Upgrading homes to meet the targets could cost up to £65billion, according to Government estimates – and homeowners are expected to foot the bill.
What is an EPC rating?
EPC is a rating scheme which bands properties between A and G, with an A rating being the most efficient and G the least efficient.
The rating is based on the building’s energy features such as the building materials used, the heating systems and its insulation.
Band A – 92 plus (most efficient)
Band B – 81 to 91
Band C – 69 to 80
Band D – 55 to 68
Band E – 39 to 54
Band F – 21 to 38
Band G – 1 to 20 (least efficient)
The survey must be carried out by an accredited energy assessor and entered into a government-approved software to generate a score for the EPC, typically ranging from 0 to 100, simplified into bands A to G for domestic property.
The score remains valid for 10 years with homeowners needing to arrange a new one whenever a property is sold or rented – anyone failing to have one under these circumstances can be fined.
Ensuring adequate loft, underfloor or cavity wall insulation, upgrading to double or triple glazed windows, draught proofing and hot water tank insulation are just some examples of improvements that can boost an EPC rating.
There are currently no legal requirements for homeowners to have a minimum EPC rating, although landlords need to achieve a minimum EPC of E to let a property.
However, there are concerns that homeowners living in energy inefficient homes will come under increasing pressure to upgrade them.
Earlier this year the UK Government consulted on how mortgage lenders can help householders improve the energy performance of their homes.
This included proposals to introduce a target-based approach for improving the energy performance of lenders’ portfolios through a portfolio average target of EPC band C by 2030, for which the government is currently analysing the feedback.
Energy efficiency: About three in five homes in the UK have a D rating or worse, whilst those built before 1900 have an E rating on average, according to ONS data
This could see mortgage lenders become more reluctant to lend on properties with EPC ratings below C, because it would bring down their average.
Timothy Douglas, policy manager at Propertymark said: ‘If this were to come into effect, it could cause distortion in the market.
‘If less efficient properties were harder to purchase for example, then their value would be affected as they would become less attractive or attainable.
‘Traditionally some older properties have actually held a premium over other property as they offer attractive settings and curb appeal but changes to borrowing could see more efficient properties start to hold a premium instead.’
What can homeowners do?
At present there appears to be a small price gap opening up between energy efficient and energy inefficient homes.
There is a £9,840 difference between an average home with an EPC C and an EPC E rating, based on Savills data, although this increases to £47,605 when comparing EPC B to EPC F.
According to a recent Rics survey, although a third of property professionals had seen an increase in demand for energy-efficient homes over the past year, more than three quarters said a home’s EPC rating had little or no impact on its sale price.
There is a £9,840 difference between an average home with an EPC C and E rating, based on Savills data, although this increases to £47,605 when comparing EPC B to F.
More than half surveyed by Rics said the EPC rating had little impact, while 23 per cent believed that it had no impact whatsoever.
At the moment the government is yet to enforce any regulation or indeed a compulsory energy performance certificate rating of ‘C’ on UK properties.
But if they were to do so, the demand for Britain’s Victorian housing stock will almost certainly be impacted, forcing homeowners to either upgrade or see the value of their home fall.
The cost of upgrading a home from an E to a C rating is more than £17,000 on average, according to analysis by Savills.
But these calculations will vary depending on the specific needs of each property, with many likely to require a new heating system on top of other improvements such as wall and loft insulation.
The average cost of a heat pump system ranges between £11,000 and £18,000, whilst for homeowners off the gas grid, replacing oil with a low-carbon heating alternative could cost more than £30,000, according to Liquid Gas UK.
Many homeowners living in Victorian homes across the country will therefore be unable to afford the renovation costs without government support.
Depending on a homeowner’s circumstances, as well as the type of property, small pockets of funding are available.
This includes Local Authority Development Grants, Energy Company Obligation and Home Upgrade Grants.
Adding loft insulation is one of the cheapest and most effective ways to increase a property’s EPC rating.
But for the vast majority, there is no support available, meaning people have no choice other than to do it themselves or wait for further government intervention.
‘The challenge of incentivising homeowners to retrofit their properties will be made more difficult if the costs involved prove to be too much, especially in areas with low property values,’ said Douglas.
‘This is because the cost of the retrofitting would not be regained in the capital value of the property after works are completed.
‘National and regional strategies need to be established in order to support homeowners with funding to tackle the vast retrofit challenge that lays ahead.’
One way the government’s could begin incentivising homeowners to start retrofitting their homes would be to cut VAT on green home upgrades.
This might encourage more people to install low carbon technologies and improve energy efficiency.
Developers can reclaim VAT on new builds, or when converting non-residential buildings such as barns, or homes that have not been lived in for 10 years.
But homeowners looking to retrofit their Victorian properties with all the latest energy saving improvements are not entitled to do so.