Mortgages  

BTL investors warned of mortgage prisoner risk over eco standards

BTL investors warned of mortgage prisoner risk over eco standards

Buy-to-let investors have been warned they may become mortgage prisoners if they do not make sure their property portfolio is eco-friendly.

Since April 2020, all BTL properties have had to have an energy performance certificate rating of E. But the government wants to raise this requirement to an EPC rating of C from 2025.

This will affect more than half (58 per cent) of UK homes.

Emma Cox, Shawbrook Bank’s head of sales, told FTAdviser: “Landlords are looking into a problem they haven’t really grappled with. Some landlords haven’t even thought about it yet.”

She said one of the immediate consequences might be that tenants simply choose not to live in those properties.

“But an even greater risk,” said Cox, “is that lenders may not lend on properties with an EPC rating of D or below.”

She has seen lenders asking additional questions around investor strategy for properties which are an EPC C rating or below. “They’re asking whether landlords have a plan for the deadline,” she said. 

In very extreme cases, Cox said valuers might even start labelling properties under an EPC C rating ‘unmortgageable’. “We could find ourselves in another mortgage prisoner situation,” said Cox.

“We need to bring about an awareness of the impacts of not changing the rating. We need to go deeper and broader to help landlords improve the housing stock. These assets will stick on any banks’ balance sheet, because there is a risk of them becoming unmortgageable and unrentable.”

A recent poll conducted by Countrywide Surveying Services across lenders, brokers, and surveyors found more than two-thirds (71 per cent) believe valuers should reflect the EPC rating in value depending on a property’s EPC rating.

A number of lenders have unveiled ‘green’ mortgages, but Cox highlighted the lack of rewards for landlords with properties of an EPC rating of D or lower.

Shawbrook, a specialist buy-to-let lender, is yet to launch its green mortgages range. “You can easily fall into a gimmicky marketing ploy around it. We wanted to be more thoughtful," Cox said.

Unable to reveal the exact details for the product, which is set to land in October, Cox said it “will look to support [and incentivise] those landlords making the necessary improvements to their properties” - rather than simply rewarding those landlords which have already made them.

Last month, data released by the Office of National Statistics suggested the government’s green homes initiative could cost landlords a collective £21.5bn. This works out to £7,646 per privately rented property.

With government finance for the home improvements now withdrawn, many landlords have found themselves ‘stuck’ with no spare cash to meet the EPC target.

A UK Finance spokesperson told FTAdviser the cost implications for both landlords in the rental sector and homeowners of the government’s EPC target “need to be considered fully [...] to avoid any unintended consequences”.