The last thing on most landlords’ minds is how green their rental properties are but soon they won’t have a choice. Energy efficiency is at the top of the political agenda and this doesn’t mean policymakers are feeling guilty about climate change – it’s because they have no choice other than to do something about it!
Table of contents
- Good energy performance rating is now a must
- Government incentivises green landlords
- Energy efficiency will increase property values
- Tenants will be happier and better off
- Reduce damp and condensation build-up
- Energy efficient improvements – Tenants to have rights
- EP ratings set to be tightened up significantly in 2018
- Help your tenant save money & improve your property’s EP
- Claim help towards costs – become a greener landlord
- Take care of the simple things first
The reason is, Britain is unlikely to meet its target of a 31% reduction in carbon dioxide emissions by 2025. Naturally, some of this responsibility will be passed on to private landlords who don’t have energy efficient properties.
If this is you, or even if you suspect you may be affected by this, then read on…
Some landlords have been getting away with doing the bare minimum for a long time due to the massive shortage of housing in the UK. 240,000 houses a year are needed to meet demand. So until now, government policy on energy efficiency hasn’t had much in it that would be of concern to property investors.
The days are long gone when the state could provide enough affordable housing and the government has needed private landlords to help paper over the cracks in its housing policy over the last 25 years.
Unfortunately another problem is lurking on the horizon for the government. It needs to meet its targets to reduce greenhouse gases and who’s going to pay towards that? Landlords who own inefficient properties, that’s who!
More and more responsibility will now fall on the shoulders of landlords to provide good quality “green housing” for the growing number of people who can’t afford to buy their homes.
This good quality housing needs to be energy efficient which presents a problem. Spending your own hard-earned cash on a property you don’t live in just so that your tenant gets latest energy efficient boiler goes against the grain of investment thinking even if it’s the right thing to do for a greener planet.
Unfortunately soon you won’t have a choice either way. Things are about to get tougher for landlords.
To help you prepare in advance for what is about to happen within the next 3 years, here are 10 reasons why you can’t ignore energy efficiency and even some of the benefits of turning green.
1. A good energy performance rating isn’t optional it’s now a must
If you’re new to buy-to-let, you may be surprised by some of the legislation that now exists. If you’re advertising property without an energy performance certificate then you could find yourself in trouble. They are compulsory for all properties advertised for rent or sale. Failing to get one could mean you get a hefty fine.
Getting hold of an energy performance certificate involves an approved assessor coming out to your home to check out things like the heating and how well insulated it is. It usually takes about 45mins – 1hr for a 3 bedroom house and costs around £50 – £100 for the larger properties.
Your property will be given a rating from A-G by the assessor and this could make a big difference to the desirability of your property. A low rating can put tenants off if they think that a house is going to cost them an arm and a leg in energy bills.
It is possible to appeal against your rating. Assessors work independently and the assessment isn’t always done properly. I had the rating of one of my properties increased when I drew attention to a very similar property nearby that had received a much better rating. So don’t always accept the decision if the rating is poor and there is good reason to believe it should be higher.
2. Government incentivises green landlords (or at least they do sometimes)
The government was offering £1,500 towards the cost of energy efficiency improvements to landlords’ property in the form of the Landlord’s Energy Saving Allowance (LESA). They decided to scrap that help in April 2015.
The good news is that there are always more incentives to help save the planet from turning into a greenhouse and, depending on which government is in power at the time, you may see more or less commitment to the environmental cause.
Various bodies connected to housing and energy efficiency continue to lobby for incentives like LESA to be re-introduced.
The odd thing about scrapping financial help for landlords is that they may be less likely to bother replacing boilers and inserting cavity wall insulation without any obvious help available but there are other sources of funding we will explore later.
3. Energy efficiency will increase the value of your property in the future
If you believe that the commitment to reduce greenhouse gases is just a passing phase that will blow over when the next scientific study comes out, then you are wrong.
The energy efficiency of houses is being pushed further up the agenda with the government struggling to hit its target for lowering emissions.
Reducing emissions has a lot to do with the amount of energy we use in our houses and those houses that have the best energy efficiency will be more valuable in the future than houses needing thousands spent on things like new boilers and insulation.
4. Your tenants will be so much happier and better off
A landlord’s priority is rarely the cost of the tenant’s heating bills, but an energy efficient home helps everyone. It provides the home and property with stable heating throughout the year, while making sure that the property can withstand damp and condensation issues in winter as well as being comfortable and cool in the summer.
Your tenants will also benefit from having a more efficient home as it reduces their outgoings and utilities costs, which is a major outgoing for any family. By getting these bills down, you help provide a home for your tenant that is affordable and efficient over the long term.
A Win…Win for both parties!
As a buy-to-let investor, it is worth running your portfolio like a business and viewing your tenant as an important customer.
It’s in your interests to help them feel comfortable so they remain happy for the long term.
An inefficient home can create voids, when tenants have upped and left to move to a home that’s more affordable (and efficient), so as a business this can be costly to landlords particularly if it takes weeks or even months to find a suitable new tenant.
If for example your tenant is paying £500 a month in rent, a two month void period will cost £1,000 in lost income alone and that’s without the additional costs that come with council tax and utility standing charges whilst the property is empty.
It’s far better in the long run to make an honest assessment of the money required to get a house up to scratch and plan ahead to provide your tenants with a suitable long term home.
By being pro-active you will also produce better returns for your property business as voids can add up to far more than the cost of making a house more energy efficient in the long run.
5. Energy efficient houses reduce damp and condensation build-up, protecting your long-term investment
Making your buy-to-let property energy efficient isn’t just about saving the environment. A house can soon develop problems with damp if the tenant happens to be struggling to keep the heating switched on.
No matter how well behaved you think your tenants are, there will be some who have bad habits such as leaving towels on radiators and clothes drying in the main living areas. HMOs and student houses are notorious for this kind of thing. Often wet washing left hanging around will increase problems with damp. When houses are left empty during holiday times there may soon be evidence of damp on the walls. This is a particular problem in older houses with inefficient heating systems.
6. From April 2016 your tenant will have the right to ask you to make energy efficient improvements
It can be frustrating when outside legislation is thrust upon any business and as a landlord, it seems that the amount of red-tape is often so restrictive it stifles the market.
But from April 2016, more legislation is coming in that will allow tenants to ask their landlord for energy efficiency improvements, where the property is clearly poorly performing.
Now they can’t just ask for triple glazing and a wood stove they like the look of. There are guidelines set out which determine what’s reasonable and what’s unreasonable and you can find out what these are in the Private Rented Sector Energy Efficiency Regulations for domestic properties in England and Wales.
As a caveat, if your investment property was built within the last 10 – 15 years then the above is unlikely to apply to you.
25% of F and G EPC rated properties were built pre-1919, so if your property is an older building then it’s likely it will apply to you.
So if your property is in need of an upgrade, then it might be worth setting funds aside now.
7. Energy performance ratings are set to be tightened up significantly in 2018
If your property does not have an energy efficiency rating of E or above by 2018, then landlords will not be allowed to let the property until the EPC rating is increased. The new rules will form part of a crackdown on irresponsible landlords.
8. You can help prevent your tenant from flushing their cash down the toilet and improve your property’s energy performance at the same time
It may be one of the smallest rooms in the house, but when it comes to saving water, the best place to look is in the bathroom. Did you know the average person flushes 50 litres of water down the toilet every day? Times this by two, three or more and that’s a lot of water.
There are now cistern displacement devices that save a litre per flush or better still a low flush toilet that saves two to four litres depending on full or half flush. Installing spray head taps as well will reduce tap water usage by 80%. This will go a long way to improving the energy efficiency rating of a house.
9. You can claim help towards some of your costs if you decide to become a greener landlord
If the cost of making improvements to your property is more expensive than you thought, then there are other sources of funding worth looking into, even if you will need to jump through hoops to qualify.
One example is the Green Deal fund which offers up to £5,600 for green home improvements. The money is handed out on a first come first served basis so it is worth keeping an eye out in industry magazines or with landlord associations to see when further funds are being released.
One such release of funds totalling £30million ran out in less than 24 hours!
To qualify for the Green Deal you will need to have an assessment done on your home and then use a Green Deal approved company to carry out the improvements.
You can find more information on the Green Deal here
10. And if all of the above sounds too much work, then take care of the simple things first
If the thought of filling in lots of forms and applying for funds sounds too daunting then taking simple measures such as installing loft insulation, adding a cover to your water tank, even using energy efficient light bulbs can often boost the energy performance rating of your property on its own.
Looking To the Future
All of these reasons and tips will help you convert and improve your existing home and property, but it’s also worth bearing in mind that when it comes to making your next investment property purchase… it’s worth considering the pros and cons of investing in newer properties compared to older properties and to factor this in your budgets and plans not only for costs but for overall tenant satisfaction, as without happy tenants it’s impossible to have a successful property portfolio.