PropertyMar 21 2018

Property energy rules to impact Sipp investors

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Property energy rules to impact Sipp investors

A new energy law will have a major impact on mortgage brokers and investors.

Owners of rented non-domestic property invested in a self-invested personal pension (Sipp) or small self-administered scheme (Ssas) could be hit with a fine of up to £150,000 for non-compliance, under the new minimum energy efficiency standards (MEES).

The regulations, which come into effect on Sunday, 1 April, mean it will be unlawful to grant a new tenancy on any residential or commercial property with an energy performance certificate (EPC) rating of F or G - the lowest energy rating category.

A significant number of Sipp and Ssas properties are likely to be affected as the new rules apply to owners of commercial properties with an F or G EPC rating, which is estimated to be about 20 per cent of the market. 

Leicester-based Westerby Trustee Services believed that while MEES could be a potential financial headache for some investors, with the right advice pension schemes could benefit from the changes and help the environment at the same time. 

Ian Jarvis, business development director at Westerby Trustee Services, said: "While the new MEES regulations could involve a certain amount of investment to bring non-domestic properties up to the required standard, it could also bring long-term financial benefits to Sipp and Ssas pensions."

According to research by HSB Engineering, less than 20 per cent of UK brokers were aware of the rule's impact on their property owner clients, who could be liable for fines of up to £150,000 for non-compliance.  

Those who cannot meet the MEES grade E could lose significant amounts of rental income and non-compliance could also lead to hefty fines and civil liability claims.  

Pension schemes holding F- or G-rated properties will have a maximum of five years to make energy efficiency improvements to meet the new standards.

As properties with an F or G rating are likely to be deemed less desirable as an investment under the new rules, Westerby Trustee Services said consideration should be given to the impact this could have not only to sale values, but also on pension benefit calculations.    

If a property held in a pension is devalued by £20,000 because of a poor energy rating, then the tax-free pension commencement lump sum entitlement would be reduced by £5,000. 

This comes as OneSavings Bank announced changes to its lending conditions for residential buy-to-let (BTL) and commercial mortgages through its Kent Reliance and InterBay commercial brands. 

All BTL mortgage offers will now contain a requirement for the acting solicitor to advise the borrower that any properties rented out in the private rented sector must have a minimum EPC rating of E.

Commercial properties that do not meet the minimum standard E rating will be referred to its real estate team to review. Where appropriate, a condition will be included in the formal mortgage offer to ensure that the property receives a rating of E or above within three months of completion. 

General insurance provider Berkeley Alexander is also alerting brokers to the impact of the act on property owners and their liability.

Geoff Hall, managing director for Berkeley Alexander, said: "Clearly being prepared for the Act and meeting the new obligations is ideal, but there will always be those clients who, for whatever reason, fail to meet the standard.

"Brokers have an opportunity to make sure their clients are aware of their obligations under the new Act and advise them on suitable insurance cover to protect them if the worst should happen."

He added that some property owners' policies provide an optional extension to cover management liability but it is not common as standard - so brokers need to check policies and advise accordingly. 

Alan Lakey, IFA and partner at Highclere Financial, said: "This can certainly involve expenditure of time and money for property owners within Sipps and Ssas and make the underlying investment less attractive.

"Not everybody is willing to help the environment when so many others are intent on destroying it for profit. It’s all very well for UK citizens to act responsibly but it does irk when so many other countries such as Brazil, China, to name two have a completely different attitude and create far more environmental damage than can ever be undone by our own efforts."