Paragon Bank

The UK's housing stock needs to be upgraded to meet the net zero target

Late last year, the government unveiled new energy efficiency proposals for private rented property which could have significant implications for the sector and act as a catalyst for an increase in demand for new homes developed by SME housebuilders.

Amendments proposed included all rented property for new tenancies to require an EPC rating of at least C by 2025, extending to all tenancies by 2028. While these proposals aren’t yet enshrined in legislation, they are indicative of the government’s focus on the energy efficiency of the UK’s housing stock. 

Invariably, where the private rented sector leads, the broader residential housing market follows, and I expect to see measures announced for the broader housing market in due course. 

As the drive gathers pace towards decarbonised housing stock by 2050, could that provide a surge in demand for new-build housing, which is ever more energy efficient than existing stock as developers adopt the latest materials and technologies?

Official statistics show that 83% of EPCs  issued on new-build dwellings in England and Wales last year were at EPC level A or B, and that will improve further under the government’s Future Homes Standard, which states that all new homes should be zero carbon ready by 2025 and produce 75-80% lower carbon emissions compared to current levels.

Housing forms a key component of the government’s target of net zero greenhouse gas emissions by 2050. Homes are currently responsible for 15% of UK greenhouse gas emissions, or around 22% including electricity consumption.

For landlords looking to invest in new property, the energy efficiency of the home could become as important as location and potential rental yield. We could also see some recycling of property as landlords exit older homes and transition their portfolios towards newer or new-build properties. 

This could result in greater demand for new-build property from this segment of the market, and I expect to see BTL investors becoming more active purchasers in the new-build sector. 

Looking more broadly at the wider residential market, we await concrete proposals on how the government intends to upgrade the UK’s housing stock and whether its policies will be more carrot or stick. 

Under the 2017 Clean Growth Strategy, the government outlined an ambition for as many homes as possible to be at EPC rating C or above by 2035. Its timescales are tight and the Climate Change Committee, which advises the government on energy policy, is calling for measures such as a minimum energy rating of C for all homes by up for sale by 2028. 

The arguments for homebuyers to purchase new-build homes are compelling when it comes to energy performance but could become even more so if homeowners are required to undertake extensive upgrades to bring their home to minimum thresholds. 

Lenders are already taking note and launching mortgage products specifically for customers seeking more energy efficient homes. Virgin Money recently launched its greener mortgages range, which offers homebuyers better rates than its standard range specifically for new-build properties rated A or B. 

We expect to see these types of mortgage offers become more prevalent in the coming years, financially incentivising buyers to purchase new-build property.  

The direction of travel is clear. The UK’s housing stock needs to be upgraded to meet the net zero target — and that can only mean growing demand for new-build homes. 

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