The energy crunch threatens a financial nightmare for tena…

Additionally, the energy price cap is also set to increase from April 1, causing bills to rise by £693 from £1,277 to £1,971, an increase of 54%. UK inflation could also hit a 40-year high this year, which will only make the cost of living crisis even worse for consumers, especially those on low incomes.

Energy poverty is therefore a real concern for many in the year to come, as are the means of adequately heating one’s home in the middle of the cold winter. The charity the National Energy Agency (NEA) estimates that as a result of the increase in the energy price cap, the number of households in energy poverty in the UK will increase from 4.5 million estimated last October to 6.5 million in April.

That’s a huge number, and it could rise further in the coming year with the End Fuel Poverty Coalition (EFPC) warning that the war in Ukraine could push wholesale prices up to 3,000. £ per year, pushing the number of fuel-poor households up to 8.5 million – affecting one in three households overall in the UK.

Fuel costs in the private rental sector

It goes without saying that consumers are already facing significant financial challenges in addition to the daily crisis in the cost of living. Average UK rents rose 8.6% year-on-year in February according to Homelet, and Zoopla’s latest UK house price index for January reveals house prices rose 7.8%. % over the annual period.

So, in addition to rising energy bills, tenants are finding it increasingly difficult to pay their rents, and they are also facing pressure on their security deposit potential – a particular difficulty for first-timers. – buyers who find it increasingly difficult to buy a house at their price. interval.

While many people may be happy to rent long-term, this imbalance will only fuel demand and pressure on the rental industry, which is also facing supply issues. Indeed, the cost of living crisis will only exacerbate existing problems in the housing market.

But it’s not just tenants who are affected, landlords will also face challenges, particularly with proposed new EPC regulations that would require all rental properties to meet a mandatory Band ‘C’ energy performance certificate. on new rentals by December 2025 and by 2028. for existing rentals, as part of the government’s efforts to achieve net zero emissions by 2050.

According to a recent report by Shawbrook Bank, homeowners have so far spent an average of £8,900 upgrading their properties, almost 50% more than homeowners expected to spend.

There is still a long way to go here. New research from the Open Property Group has found that only 40% of homes in England meet the recommended EPC rating of ‘C’, with many of these sub-standard properties likely to be in the rental sector. Upgrading buy-to-let properties to meet the new minimum is already proving financially difficult for landlords, with the Shawbrook report finding that when landlords were asked if they had the funds to pay for the changes in energy efficiency required, 31% said they would have just enough, 14% do not have access to funds and 6% simply do not know.

Another Shawbrook report on the evolution of buy-to-let found that 19% of landlords currently finance renovations with credit cards or short-term financing products, and in addition, 60% use their savings or personal investments to pay for a renovation. .

Costs and opportunities for the real estate market

Upgrading properties to meet EPC requirements will undoubtedly affect landlord returns, and research from Shawbrook found that more than half of landlords are likely to pass on at least some of the costs to tenants; this rises to 68% of landlords in London where costs are higher.

Homeowners might lament EPC changes and the costs they entail, but tenants are likely to see them as increasingly important when considering their potential bills – energy-efficient homes will have lower overall costs, and properties with a higher EPC rating will be more attractive. tenants (and buyers) when considering their potential energy costs.

This can mean that tenants will be forced to choose between higher rents or higher energy bills when looking for their next property, and for agents it means that highlighting the property’s EPC rating could become increasingly valuable as a means of attracting tenants over the years. to come; consumers may not view EPC ratings as particularly important right now, but younger generations are becoming more cost-conscious (and environmentally conscious), which could see the market landscape shift in favor greener properties in the future.

There is an advantage to this. Landlords may seek to rebalance their portfolios to mitigate future costs as a result of EPC changes, and rental units in the new build sector are likely to become more attractive as they already have much higher EPC ratings.

The market for green mortgages is also growing, with Landbay research finding that 84% of homeowners who are aware of green mortgages are attracted to the incentive of lower interest rates.

The bottom line is that while circumstances may be difficult for landlords and tenants right now, change isn’t necessarily a bad thing, and all market players could potentially benefit from this change.

*Adrian Gill is a non-executive board member of Reapit

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