The world is going green. It is the ultra-fashionable movement of the moment encompassing celebrities, politicians and a new phenomenon of people known as ‘craggers’ alike. Carbon Reduction Action Groups, if you’re wondering.
The current weapon of choice in the government’s arsenal against pollution is the Energy Performance Certificate (EPC), trumpeted as the housing market’s answer to saving the world from global warming.
Under EU law, every property up for sale must have an EPC by 2009. The introduction of Home Information Packs (HIPs) will see it become compulsory in England and Wales in a matter of weeks. However, up until now, the government had not clarified whether rental properties would be required to have an EPC. However, following a parliamentary debate, it has now stated that an EPC will be required for all buy-to-let (BTL) properties from October 2008, although as yet, no guidelines are in place.
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With BTL seeing some of the fastest growth in an ever competitive market, there are concerns this move by the government will hinder its development. This is no small matter when one considers the BTL market, according to the Council of Mortgage Lenders, currently makes up 11 per cent of total secured mortgage lending and last year was worth around £38.4 billion.
Another stealth tax
This move by the government has been met with consternation by those in the market and for Colin Snowdon, chief executive of Freedom Lending, requiring EPCs to be renewed every few years, is nothing more than a tax on the private rental sector.
He says: “What is it about BTL that has to be taxed every three years rather than when the property is sold? What is the benefit to the landlord? It strikes me as meddlesome and I personally find it disappointing. It will have an adverse affect on the market, because of the added cost. Landlords are already under pressure and, while I don’t think it will sink the market, it’s an extra bureaucratic burden.”
For Lee Grandin, managing director of Landlord Mortgages, an added worry is the potential costs in the long run and whether landlords are required to meet further regulations by improving the energy efficiency of their property. He says: “In time, it will be more costly than in the first instance. At the moment, it’s just the cost of the certificate. On that basis, it’s not a significant cost. It’s more a case of what it will lead to. It could make certain fuel systems redundant or require windows to be replaced and force landlords to redo things before their time. Yet, in the last 10 years, landlord houses have improved significantly in decorative order.”
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However, Grandin believes those hardest hit will be landlords who currently have sizeable portfolios. He comments: “If they have to get certificates for all their properties and have them renewed regularly, my inclination is it will be a problem. But that’s an unknown.”
He adds: “This is a regular burden for landlords and it would be unfair to restrict it solely to landlords. However, if it was a continuous burden for all, there would be an uproar and would not to happen. At the moment, if something like the boiler goes, it has to be replaced with a certain type. Maybe in time, the two combined will be enough.”
EPC benefit
Yet, how much benefit the EPC will actually have is questioned by Snowdon. He says: “By showing potential tenants how energy efficient a property is, it will give them a guide. But I believe tenants are going to look at things like location and standard of maintenance first. People do look for energy efficiency, with properties that have insulation and double glazing versus no insulation and drafty windows. Yet, potential tenants don’t often look at just those two things.
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“This is another irritant to potential investors. The private rental sector is a fundamental part of the housing market and it would be a good idea for the government to consider how this measure will affect it. I don’t see why landlords and tenants are being discriminated against. It seems odd to pick on the private rental sector.”
Once the government releases details of exactly how the scheme will work within the sector, the industry will be able to have a better idea of the long-term costs and burden involved for landlords. The next 18 months will give the industry some time to prepare and everyone will have to keep abreast of the situation. Brokers must make sure new investors understand this will be a further cost that they might not have been aware was coming. Nevertheless, only time will tell how much of an impact EPCs will eventually have on landlords and the BTL market.
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