How energy efficiency is affecting the mortgage market

As well as a voluntary EPC target for lenders, the government has proposed requiring new tenancies to reach a C-rating from April 2025 and all tenancies to reach the same rating by April 2028.

Clay warns that landlords with properties that do not meet the proposed standard may find it difficult to secure a buy-to-let mortgage.

“The government has also pledged that by 2035, [as many homes as possible] should have an EPC rating of C or above as part of its long-term plan to tackle climate change, meaning buyers or homeowners looking to remortgage may struggle in the future.”

Gammon at Knight Frank Finance says it is clear the government wants lenders to play their part in cutting emissions in the residential sector.

He adds that while the market for green finance has a “bright future”, it remains small.

Indeed, a broker poll by Countrywide Surveying Services found the majority of respondents (94 per cent) were yet to sell a green mortgage, which typically offers a lower interest rate.

“Incentives for borrowers are improving, but still don't move the needle for borrowers on a large scale,” says Gammon.

Little impact on value despite growing interest

Ana Bajri, head of sustainability at Countrywide Surveying Services, says although ‘brown’ features and poor energy efficiency are noted in valuation reports, the practice does not see much evidence that this is reflected in property sale prices, despite an uptick in demand for energy-efficient homes.

“At this point in time, valuers report that they are not observing any concrete evidence that energy-efficient homes are valued more, with other factors still being prominent in home purchases.”

But Bajri adds that CSS is starting to see a drive from lenders to start to consider energy efficiency and EPCs in mortgage valuations, with more lenders becoming increasingly concerned with low EPC ratings.

“Some lenders are keen to request more information relating to energy efficiency in the valuation reports, including noting the rating and highlighting any variations between the rating of the subject property and the comparables.

“[However,] we are not sensing low EPC ratings leading to lower valuations at this current time.”

Simon Jackson, managing director at SDL Surveying, says that to the extent that a poor energy efficiency rating is caused by a property in poor repair, it will have a lower value than a comparable property in good order.

“But today there is no hard and fast rule that says a D-rated property – which in all other respects is the same as a C-rated comparable property – is worth less,” he adds.

“Buyers do not today, in the main, differentiate price on the basis of energy efficiency alone.”