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What advisers need to know about the drive to making homes more energy efficient

What advisers need to know about the drive to making homes more energy efficient
Photo by Leon Neal/Getty Images

As a carbon-neutral company and a responsible buy-to-let lender, Landbay is hugely supportive of the government’s goal to be net zero of carbon dioxide emissions by 2050.

We are acutely aware of the need to improve the energy efficiency of our homes, which are measured using Energy Performance Certificates, and for lenders there are some important issues to consider. 

First, within the Department for Business, Energy & Industrial Strategy consultation, new regulation proposes that all lenders must have an average EPC C rating across their entire back book by 2030.

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Second, there are proposals that all rental properties must be at least EPC C rated by 2028 and for new tenancies by 2025.

These dates have yet to be confirmed as they are part of the Minimum Energy Performance of Building (No. 2) bill, which is in the early stages of going through the parliamentary process.

For the wider residential market all homes should be C rated by 2030.

Back book analysis

Lenders need to address this, and at Landbay we are taking steps now to ensure our mortgage book complies, as far as possible, with these EPC requirements when they are introduced.

To ensure accuracy, we asked Kamma to undertake analysis of our back book.

Kamma specialises in geospatial technology and was able to report on all the EPC ratings within our mortgage book and how this compares with the wider private rented sector. 

We do have properties in our mortgage book that are rated D or below, but we are much lower than the PRS where 63.9 per cent of housing stock will not meet the C rating.

But we must be realistic here, because some of those properties may not be able to be improved to a C rating. So we, like all lenders, need to identify the risk to our back book.

Funding

For some of our funding partners who may securitise, investors will want to know the EPC risks within the residential mortgage-backed securities they are buying.

For our partners that are banks, the EPC risks will be equally important.

Transparency is key and if we understand the risk within our book, investors will know exactly what they are buying.

If we can demonstrate our loans are on properties with EPC A, B or C rating it will be more attractive to investors, who are increasingly wanting to know the green credentials of mortgage books.

By doing this analysis we know where we are today and our what our trajectory is to be net carbon zero.

Mortgage industry has a key role to play

We need to improve knowledge in the market around the whole EPC issue, and the mortgage industry can do more to help here. 

The government has said it sees lenders as “uniquely placed to influence homeowners, landlords and businesses to undertake energy efficient property upgrades at key trigger points in the mortgage lifecycle such as the point of purchase, renovation or remortgage”.

This applies equally to brokers who are often the first port of call for borrowers, including in the buy-to-let space.