Climate change is a pertinent question that every industry must answer.
The real estate sector is no exception – nor, by extension, the relay market.
An estimated 40% of UK carbon is emitted by households, reflecting the need for residential properties to ‘go green’.
The question, of course, is how to achieve this.
Owners should take note
By 2025, rental properties will have to meet a new minimum Energy Performance Certificate (EPC) rating, which determines the energy efficiency of buildings.
Indeed, to make the necessary changes, many owners will have to carry out major renovations on their properties to meet the new standards.
For some, this will be a simple task; for others, there will likely be serious questions about what improvements need to be made and, more importantly, how to fund them.
There are two key areas where homeowners can improve a property’s energy efficiency and at the same time increase its potential profitability.
The first is electricity consumption, particularly with regard to lighting and boilers.
A simple switch from old, inefficient bulbs to Energy Star qualified LED bulbs can reduce energy consumption by 75% and they last up to 25 times longer.
This will likely lower energy bills for tenants, while the landlord will have less to worry about maintaining fixtures.
The same is true for boilers.
New condensing boilers can be up to 34% more efficient than older boilers and can reduce fuel bills by 30%.
The price of spare parts and repairs for old boilers is also likely to increase, making an old boiler a potentially expensive asset.
Encouragingly, 15% of renters say they would pay more rent for a new boiler and heating system, reflecting both the demand and profitability of sustainable homes.
The second area is insulation.
Better insulation within a dwelling will limit heating needs, which represent up to 40% of a tenant’s annual budget.
By simply insulating the walls, homeowners can expect to reduce the amount of energy used to cool or heat their properties by around 25%.
Better insulation of a property’s windows also allows landlords to charge higher rent and increases property value, with 18% of tenants saying they would pay more if their windows were more efficient.
The side effects of better efficiency and insulation can decrease the maintenance needed on a property.
For example, a better insulated house is much less vulnerable to mold. So, owners might consider renovating in these areas ahead of regulatory changes, as it can generally improve the profitability of the property.
2025 may seem like a distant future, but there is little time to waste.
There are many reasons why homeowners might not want to undertake renovation projects in the current climate and making the necessary adaptations can be a costly and disruptive task.
However, there are significant incentives to adapt ownership early.
Like previous sustainability initiatives, such as installing solar panels, early adopters of greener practices are more likely to get government assistance for their renovations.
Indeed, the government will provide grants of up to £5,000 to homeowners who want to switch to low carbon boilers and heating systems from April 2022.
For owners looking to sell in the next three years, properties rated C or higher sell for 2.7% more than less durable properties.
Thus, real estate investors can get a positive return on investment from energy efficiency improvements.
The transition sector can respond
The bridge industry can limit the extent of the “eco-privilege” in various ways.
As always, flexibility is key.
For example, a homeowner buying a property rated EPC D or lower, perhaps at auction, could use a bridge loan to pay for long-lasting renovations to the property before applying for a mortgage.
As a result, they will be able to access the advantageous rates of “green” mortgages.
Besides, MFS can provide second charge loans to homeowners who are able to borrow more on top of an existing loan, allowing them to quickly access financing and begin renovations in a timely manner.
Conversely, for those who cannot afford renovations on top of their mortgage, a bridge loan could be used to free up capital to make necessary improvements to their home.
As noted above, a property generally increases in value and profitability when it is renovated to meet sustainability goals, and as environmental issues rise in prominence, demand for environmentally friendly rental properties is likely to increase. of the environment will increase.