Private rental sector - the new energy plan

Government launches proposal to make private rental sector more energy-efficient. The BTL market shows no signs of slowing down. Landlords continue to be overlooked as the government are yet to introduce hardship loans for tenants.;
Eviction cases resume

The government has initiated an official consultation on plans to make the private rental sector more energy efficient, and landlords face large fines if they fail to reach new energy standards.

In the consultation document released by the Department Of Business, Energy and Industrial Strategy explaining the proposal, it explains that the change would be most significant for the private rented sector, as it represents 20% of the housing stock in England and Wales, and has the highest concentration ‘of fuel poor tenants’.

In the most recent annual fuel poverty statistics report, PRS properties were among the least energy efficient within the domestic housing stock, costing over £6billion in energy bills in 2018, and producing GHG emissions of around 11 megatonnes of carbon dioxide equivalent per year.

Improving the energy performance of private accommodation has become a vital part of the government’s strategy to decarbonise buildings in a cost effective way, in light of the increasing challenges posed by climate change.

New energy targets

The proposal would see the PRS subject to more rigorous energy targets, in the next ten years, to achieve the following:

  • Decrease bills for low income and vulnerable tenants, in support of the government’s statutory fuel poverty target.
  • Increase the quality value and desirability of landlords assets.
  • Reduce energy bills for tenants and ensure warmer homes.
  • Support investment in high quality jobs and skills in the domestic retrofit supply chain across England and Wales.
  • Provide greater energy security through lower energy demand on the grid and reduced fuel imports.

Main elements

The government makes it clear that the “preferred policy scenario for improving the energy performance of privately rented homes” involves four main elements:

  • Raising the energy performance standard to Energy Performance Certificate (EPC) energy efficiency rating (EER) Band C
  • A phased trajectory for achieving the improvements for new tenancies from 2025 and all tenancies from 2028
  • Increasing the maximum investment amount, resulting in an average per-property spend of £4,700 under a £10,000 cap
  • Introducing a ‘fabric first’ approach to energy performance improvements.

What you need to know

To ensure landlords meet new measures, letting agents will likely be instructed to only advertise rental properties that conform with the energy efficient targets.

Notably, the consultation document says that it will permit tenants to request energy improvements, and give powers to local authorities to fine landlords up to £30,000 if they do not comply.

The preferred policy scenario for the plan would be to use a phased introduction, meaning that new tenancies will need to meet targets from 1st April 2025 and all tenancies by 1st April 2028.

This has been suggested to limit disruption to landlords and tenants and encourage a ‘whole house’ approach to retrofit, rather than having a ‘piecemeal approach’.

Feedback has been encouraged and the closing date for comments from landlords and letting agents is 11:45pm on December 30th, although the government won’t be responding to comments until spring 2021.

View the consultation document here, with information on how to respond.

‘No slowing down’ for BTL market

The demand for rental properties continues, as the number of new prospective tenants reached an all-time high in August, as seen in the ARLA Propertymark’s latest PRS report.

The report recorded that the average letting agent branch in the UK registered 101 new tenants in August, breaking July’s previous record of 97.

Findings show that the average tenancy length reached an unprecedented level for the month of August, with tenants staying in properties for an average of 21 months.

At a regional level, this figure was highest in the East Midlands, with tenancies lasting 25 months on average. In comparison, the North East had the lowest average tenancy period, with tenancies lasting only 10 months.

It is however important to note that the eviction ban likely contributed to these results.

Although there is demand from new tenants, the number of rental properties available per letting agent in August did not increase. Suggesting that the amount of people looking to rent continues to exceed the rental supply across the UK.

No signs of ‘slowing down’

President at the ARLA Propertymark, Angela Davey believes that the rental market is showing no signs of slowing down anytime soon. However, she notes how important it is for landlords to work with their tenants at this uncertain time. She commented:

“Our latest figures reveal the rental market still isn’t showing any signs of slowing down. We continue to see record-breaking levels of rental stock and demand from tenants, painting a positive picture for the future of the private rented sector.

“With Covid-19 lockdown restrictions starting to increase again as we head towards the colder months, it’s more important than ever for landlords to communicate well with their tenants, and that tenants continue to pay their rent to ensure the market remains strong over the next period.”

Mortgage approval rise

In addition to the rental demand, new figures suggest that a growing number of buy to let investors are taking advantage of lower borrowing rates and the existing stamp duty holiday, as mortgage approvals increased considerably throughout August.

The Bank of England revealed that mortgage approvals hit a 13-year high in August 2020.

Andrew Turner, chief executive of specialist buy to let brokerage, Commercial Trust Limited commented:

“In the lead up to lockdown, recent changes in the buy to let space had led to a dominance in remortgage activity.

“However, with the stamp duty holiday encompassing a discount for landlord investors, opportunity for purchase activity has driven an increase in demand.

“Fundamentally, whilst the rules and regulations around buy to let have evolved, an investment in bricks and mortar can still offer exceptional returns, where other avenues may not be so fruitful.

“Rates remain at historic lows and lenders are quickly adjusting to present conditions, with new announcements offering opportunity to landlords all the time.”

Landlord’s overlooked during pandemic

Uncertainty continues for landlords in England, as the government are yet to introduce measures to support tenants to pay their rent.

Whilst employers and employees across the country have welcomed Chancellor Rishi Sunak’s ‘Job Support Scheme’ across the country, many people argue that the initiative fails to provide ‘a much needed boost’ to support landlords experiencing financial hardship.

Research conducted by YouGov on behalf of the National Residential Landlords Association (NRLA), estimates the total income lost by private landlords with properties in England could be as high as £437 million, as a result of the Covid-19 pandemic.

Almost a fifth of landlords have lost up to half of their normal rental income.

Hardship loans for tenants

In light of the findings from the YouGov research, the NRLA are once again urging the government to introduce interest-free hardship loans, to help tenants pay their upcoming rent and pay off arrears.

Although the NRLA has welcomed the Winter Economy Plan, they insist that more is needed to support tenants and their landlords.

Policy Director for the NRLA, Chris Norris stated:

“It is vital that the government now follows the example set in Wales and Scotland and develops interest free, government guaranteed hardship loans to help tenants pay off rent arrears built as a result of the pandemic.

“We cannot expect them, or landlords, the vast majority of whom are individuals without the means to absorb significant losses, to continue to struggle without support.”

“We welcome the government’s measures to subsidise wages. We warned that the end of the furlough scheme ran the risk of many households facing further difficulties in paying their rents.”

Missed opportunity

Like many, David Alexander, joint Managing Director of Apropos, believes that more needs to be done to help support landlords during the pandemic.

He explained that YouGov’s research is a prime example as to why the government’s Winter Economy Plan must go beyond the measures of just subsidising wages.

Alexander commented:

“The chancellor has missed a golden opportunity to provide support to individual landlords in this country at a time when many of them are experiencing severe financial hardship.

“These ‘invisible’ people, who own one or two properties and rental is often their sole source of income, make up the majority of landlords in the UK and they are facing extremely difficult times.

“If these individuals are not supported then the risk is that they will exit the private rented sector in large numbers which will cause enormous problems for tenants in the coming year. Supporting this vital group within the renting sector is essential and must be addressed immediately.”

This information should not be interpreted as financial advice. Mortgage and loan rates are subject to change.