Buy-to-let investors boost returns with energy efficiency
The landlords of almost 300,000 properties were required to upgrade their energy efficiency earlier this year, those who didn't faced several thousands of pounds in fines.
The worst-rated properties in the country were required to be improved to a new minimum standard, before a new tenancy in the private-rented sector could be offered. In 2020, no existing tenancies can be extended unless they satisfy the new criteria.
Landlords that failed to meet the target risked being fined £5,000 per property. According to the latest English Housing Survey, released in 2017, 6.3pc of the 4.5?million properties in the private-rented sector were rated an “F” or “G” – the lowest possible – in 2015-16. This means there could be as many as 285,000 properties in need of work.
As a minimum, homes should be an “E” rating. Additionally, the Government’s Clean Growth Strategy aims to upgrade every home to a “C” rating by 2030. Currently only 26pc of privately rented homes satisfy this requirement.
The changes have the potential to massively cut energy costs for tenants. The average annual bill for someone living in a “G” rated property is £2,860. Upgrading the home to an “E” rating cuts this to £1,710, while an A or a B-rated property costs just £750 a year.
Some landlords are now buying up homes that are less energy efficient and working on them in order to boost their yield. In fact, landlords could get a 'refurbishment mortgage', which would cover 75pc of a property’s value and 100pc of the cost of works. Once the works are completed, landlords can refinance with a traditional buy-to-let mortgage.
With yields getting lower and profits squeezed, these kinds of value-adds are vital. A lot of this sort of work is appealing to tenants too, as it makes the house a nicer place to live.