17 Oct 2024

Greener rentals worth nearly £20K more but landlords need Government support to retrofit by 2030 deadline

  • Price premium for greener rental homes higher than for owner occupiers, reveals The Mortgage Works’ buy-to-let report
  • Rental income can be improved by up to 7% - around £70 per month on typical English property
  • North of England attracts biggest house price premium – up to 15% - with rental income up by 8%
  • London landlords could see a rental premium of up to 12%, while house prices could be boosted by up to 11.4%
  • Comes as The Mortgage Works calls on government to give landlords more support to meet 2030 EPC deadline

Landlords can boost the price of their properties and see growth in rental income through green retrofitting, according to The Mortgage Works’ latest quarterly buy-to-let report.

But with more than one in eight (16%) landlords surveyed not willing or able to invest in their properties1 – despite a 2030 deadline for all rental properties to have an Energy Performance Certificate (EPC) rating of C or above - The Mortgage Works is calling on the government for greater incentives. Those surveyed aged 55 and above are most likely to express doubt over whether they can meet the deadline, with just under four in ten (38%) saying this was the case2.

The Mortgage Works wants to see greater incentives for landlords to make changes. It would like to see grants given to improve properties that are the hardest to retrofit, while enabling retrofitting costs to be offset against rent for income tax purposes. This, alongside benefits realised through better house prices and rental income, would make it more financially viable for landlords, while also helping to reduce the energy bills for tenants and assisting the UK to reach its wider net-zero targets.

Dan Clinton, Head of Buy to Let at The Mortgage Works, comments, “Our analysis shows there can be long-term gain with green retrofitting through increased property value and improved rental yields. But it will be a hard slog for many landlords to meet this ambitious timeline to bring their homes up to spec, particularly those who have had to absorb higher mortgage rates and bigger tax bills in recent times.

 “We need government to step up and provide the necessary support for landlords if they expect that change to happen. As history shows us, positive change can be painstakingly slow when there are a lack of incentives. Alongside this, there needs to be an effective framework for energy efficiency including clarity around the future of EPCs, information on energy efficiency improvements and skills training to ensure there is a workforce able to deliver green improvements at scale.”

 The time to act is now – we must consider how we make it as appealing as possible for landlords to pour investment into their properties. Anything less will fall flat.”

The report uncovers a range of insights relating to the benefit of greener homes. These include:

 House prices: A more energy efficient buy-to-let property, with a rating of A or B, attracts a significant house price premium of 10.9% (£19,500), compared to a similar property rated D (the most common rating), while improving the property to a C rating will bring a 3.4% (£6,200) premium.

This price premium is significantly more compared to an owner-occupier property, where an A or B-rated house in England only attracts a 2.2% (£6,500) premium.

graph 1

Growth over time: The introduction of minimum energy efficient standards (MEES) appears to have had a sizeable influence on the property value BTL landlords attach to energy performance. Using data prior to MEES coming into force, the house price premium on an A or B-rated property was just 3.2% (£4,300) back in 2015, significantly less than the 2024 premium, with a C-rated property generating a very modest increase of 0.5%.

graph 2

Rental income: While the impact is smaller than on property prices, landlords could also see a rental premium through green retrofitting, with A and B properties commanding a 7% rental income boost – the equivalent of around £70 per month based on the typical rent in England. However, properties with an energy performance rating of C will still attract a premium – two per cent (c£20 per month).

graph 3

North of England attracts biggest house price premium with London seeing biggest boost to rental income for landlords:

House price and rental income premia varies across the country. In the North of England, an A or B-rated buy-to-let property attracts a 15 per cent house price premium (4.8% for a C-rated property), whereas in the South of England, this premium is considerably lower at 5.6 per cent (2.9% for a C-rated property).

London also sees a significant rental income premium, with A and B rated properties attracting 12 per cent higher rents than a similar D-rated property. A C-rated property in the capital could command a 3.8 per cent rental income boost. The North of England and the Midlands both have an eight per cent premium for A and B-rated properties (2.2% and 1.9% for C-rated properties respectively), while energy efficiency appears to have a modest impact on rents in the South of England, which only sees a three per cent premium (1.1% for properties rated C).

Cost vs benefits:

When it comes to costs versus benefits of upgrading to a C, the positive impact on house prices is equivalent to a significant proportion of the initial investment (and actually exceeds it in the south). Combined with the higher achievable rents, the majority of landlords are likely to recoup the initial investment within five years, although the full financial benefits would only be realised upon sale of the property, which would incur additional costs, such as capital gains.

graph 4

The Mortgage Works calls for Government support:

With only 45 per cent of properties in the Private Rented Sector (PRS) having an above average energy performance rating of between A to C, The Mortgage Works is calling on the Government to support landlords meet their target by giving grants to improve properties that are the hardest to retrofit, as well as allowing all improvements made to increase the energy performance rating of rental properties to be tax deductible against rental income. This, alongside the boost to house price and rental income, would make it more financially beneficial for landlords, while also helping to reduce the energy bills for tenants and assisting the UK to reach its wider net-zero targets.

Read The Mortgage Works’ full report here.

Notes to editors

The research was conducted by Censuswide with 500 landlords (aged 18+) across the UK with a property that is lower than a class C rating between 09.10.2024 - 11.10.2024. Censuswide abide by and employ members of the Market Research Society which is based on the ESOMAR principles. Censuswide are also members of the British Polling Council.

1 No’ and ‘Not sure’ answers combined.

2 No’ and ‘Not sure’ answers combined.