The Intermediary – March 2025 - Flipbook - Page 56
BUY-TO-LET
Opinion
Raising standards
and sustainability
T
he standard of privately
rented homes is a
key component of
the sector’s hoest
topic, the Renters’
Rights Bill. Legislation
that ensures tenants live in safe,
comfortable homes is something
we wholeheartedly support, and
landlords have been delivering.
Government data shows how the
standard of privately rented homes
has improved significantly over the
past 15 or so years.
In 2005, 47% of private rented
sector (PRS) properties were classed as
‘non decent’ according to the English
Housing Survey (EHS). By 2023, this
figure had fallen to 21%.
The improvement of PRS stock
quality corresponds with an increase
in buy-to-let (BTL) investment.
Industry figures show that the number
of outstanding buy-to-let mortgages
grew from one million in 2010 to just
under two million by October 2024.
Lending on poor quality properties
presents credit and reputational risks
for lenders, and the surveying and
underwriting used to mitigate this
is an important tool in driving up
standards in the sector.
First-rate properties
Landlords tell us that they target
properties in need of improvement
and spend substantial amounts
rejuvenating them, which challenges
the outdated view that privately rented
homes are second-rate.
Yes, improvements can increase
capital value and rental income,
but landlords are also motivated by
the need to aract and retain good
tenants. Many operate their portfolios
as long-term businesses, recognising
that a well-maintained property helps
to create positive landlord-tenant
relationships.
With Labour launching a
consultation on Minimum Energy
Efficiency Standards (MEES) in
56
The Intermediary | March 2025
February, the transition to a greener
rental sector is another aspect of PRS
regulation on the agenda...again.
Proposals have been put forward
that would require all privately rented
properties let under new tenancies
to achieve an Energy Performance
Certificate (EPC) rating of Band C or
above by 2028. This obligation would
extend to existing tenancies by 2030.
With the consultation concluding
in May, and reform of the EPC system
scheduled for 2026, the issue will
continue to gather momentum in 2025
and beyond.
While the potential rule changes
bring uncertainty that may mean
some landlords are hesitant to
undertake upgrades, we know that
many have been improving their
portfolios long before the latest focus.
We see this in our lending data, with
the proportion of loans on our book
for properties with EPC ratings of A
to C increasing to 53%. EHS figures
show that this trend is evident across
the wider market, too. Between 2013
and 2023, the proportion of EPC A to
C properties more than doubled, from
23% to 48%.
Nevertheless, with the tenure
making up almost 20% of UK
households, almost three million
properties need some level of green
energy retrofiing.
If the policy becomes law and is
enforced from 1st January 2026, that
leaves 504 working days to 1st January
2028 and 1,008 to 1st January 2030.
Dividing the number of PRS properties
estimated to be below EPC C (2.99
million) by 504 days reveals that 5,934
properties would need to be upgraded
every day to meet the proposed 2028
deadline. Dividing by 1,004 shows
that 2,978 homes would require
retrofiing by 2030.
Time and money
Of course, these calculations are
based on assumptions, but they give
weight to our view that the timescales
LOUISA SEDGWICK
is managing director of
mortgages at Paragon Bank
These opportunities
will diminish if the rules
are too punitive and act as
a barrier to investment”
proposed are unrealistic. The
Government estimates that necessary
enhancements will cost between
£6,100 and £6,800 per property,
and the consultation highlights
the financial support that would be
available to landlords.
The actual cost will obviously vary,
and grants are subject to eligibility, so
it’s likely that landlords will also need
to explore finance options.
Interestingly, Paragon research
shows that almost six in 10
landlords haven’t commissioned
EPC assessments aer enhancing
properties. This means that they
could potentially miss out on the
preferential rates Paragon and other
lenders offer for properties with
higher sustainability credentials.
Additionally, it’s estimated that
around 60% of PRS properties are
owned outright, suggesting that
there may well be asset rich, cash
poor landlords who could use
equity to borrow funds needed to
finance upgrades.
This highlights how a shiing
legislative landscape can provide
opportunities for the sector.
But these opportunities will
diminish if the rules are too punitive
and act as a barrier to investment. This
is why we’re actively engaging with
politicians, highlighting the need for
legislation that benefits landlords as
well as tenants. ●
