Nic Rotton, Commercial Mortgage Consultant at Sterling Commercial Finance, speaks on the recent green evolution of BTL.
We recently celebrated the 25th anniversary of Buy to Let and my last blog explored how it has evolved over the years.
One of the recent evolutions has been the launch of green BTL mortgages by a number of Lenders. This isn’t to suggest that the mortgage itself is eco-friendly, but it goes some way to facilitating the UK Government’s push to make our housing stock more environmentally friendly.
It is estimated that 15% of all UK emissions come from our housing and one of the Government initiatives to reduce this is the requirement for all rented houses to reach an Energy Performance Certificate (EPC) rating of at least C by 2025 (existing tenancies have until 2028). The current minimum standard is an EPC of E, which would suggest a significant number of landlords will need to invest in their portfolio over the coming years in order to ensure this stock is available to rent. Without action, we risk a substantial proportion of the Private Rental Sector becoming unrentable and therefore unable to secure a mortgage or resell as a BTL.
2025 is not that far away (I can’t believe it’s less than 8 weeks to the end of 2021), and my message to landlords is to act now ahead of the rule change in 2025. There is a recognition by the mortgage industry that many landlords will need support from lenders to make these changes. In addition, upgrades aren’t normally straightforward or quick to resolve and trying to access good quality builders is already providing a challenge. I heard of one client saying his recommended builder was booked up for almost the next 12 months!
We have seen an increase in the requirement for short-term finance (bridging finance) for light and heavy refurbishment in the last 12 months in order to improve the energy efficiency of the property. Quite often, there is a significant change to be made to increase the rating to an EPC of C and above and short-term finance can be a useful solution when the property will not be lettable during the refurbishment or where funds to carry out the work are not readily available. Over recent years, we have seen the introduction of innovative and competitive products to the market, whether borrowing to refinance the loan or funding for the cost of works.
The Buy to Let market has also responded with an incentive to reward landlords who are committing to increasing the energy efficiency of their properties. Lenders such as Lendinvest, Landbay, Paragon have introduced so called Green Mortgages, offered at lower rates for properties which can show EPC ratings of C and above.