Why energy efficiency marks the future of property investment
There are several factors to consider when investing in the UK’s buy-to-let property, and the latest to add to the list is that of energy efficiency. As buyers and renters grapple with the cost-of-living crisis, high energy costs and the social responsibility to reduce carbon emissions, more and more people are expressing interest in ‘green’ or more energy efficient properties.
In fact, a recent survey by Legal & General found that buyers are willing to pay up to 20% more for a low-carbon property, and over 50% of people said that they would be more likely to search for a property with high energy efficiency ratings. With this new prerequisite set to become a permanent feature of the property investment landscape, now might be the perfect time to invest in ‘green’ property.
What makes a property ‘Green’?
There are several factors that can influence a property’s energy efficiency. Solar panels are an option that can reduce a property’s reliance on gas or carbon-generated electricity, and investing in solar panels can increase a property’s value by up to £2,722. Water conservation in property is another major green consideration, and according to the Consumer Council for Water, the average UK household uses about 145 litres of water per day, with around 109 litres per property lost per day through leakage.
Incorporating sustainable materials in the building or renovation of a property also makes a property ‘greener’. These include materials that are easily produced in nature and disposed of in such a way that the impact they leave on the environment is minimal, such as bamboo, as well as recycled materials like glass, metal, or plastic.
Why are energy efficient properties appealing for investors?
According to recent research from property portal Share to Buy, energy efficiency is becoming a top priority for investors, with around 72% of buyers stating that it is one of the critical factors to consider when selecting a property. Recent studies from both Rightmove and Legal & General have also shown that tenants are willing to pay more in rent for an eco-friendly property. The demand for energy-efficient homes is good news for property investors, meaning that they are able to charge higher rents for energy-efficient accommodation as the demand grows.
Additionally, as the market becomes more aware of the need for a more environmentally stable society, it is likely that energy efficiency could be enforced by official legislation. As recently as September 2023 there were government discussions regarding the requirement to force landlords to improve the sustainability of their properties. Rightmove's study, published in June 2023, states that a growing number of properties entering the rental market now have Energy Performance (EPC) ratings of A, B or C. Under proposed new regulations, all rental properties will eventually have to have an EPC rating of C or higher within the next few years. While this legislation did not formally pass in 2023, the next general election may result in the winning party reintroducing new EPC rules as voters demand greater regulations to protect the environment.
By investing in green property ahead of proposed new legislation landlords can attract tenants or buyers faster than the rest of the market, enjoying a higher rental income and capital appreciation.
What are green mortgages?
As energy efficient properties become more popular, buyers are looking for lenders to reward moves to more sustainable homes with favourable mortgage terms, and certain banks are leading the charge by responding with better interest rates for green homes.
As an example, buy-to-let lender Paragon Bank has added five-year fixed-rate ‘green’ products to its range of BTL (buy-to-let) mortgages. Rates start at 4.89%, available on Paragon’s 5% fee option, suitable for the purchase or remortgaging of single self-contained properties with EPCs of A-C. This increases to 4.94% for homes with lower energy efficiency ratings and 5.14% for houses in multiple occupation and multi-unit blocks.
Potential new legislation, household concerns about energy costs and a growing appreciation for sustainability have made energy efficiency one of the most crucial property investment considerations for 2024.
Investors who recognise this opportunity can look forward to long term returns and strengthened diversity in their portfolios. To find out more about investment opportunities in the UK and how the ‘green’ movement influences buy-to-let investors, contact Tailor my Property and enquire about guidance from our expert network of property, wealth and investment professionals.