The era of ‘future proofing’

31st December 2023

Article originally published in the Mortgage Introducer Nov /Dec 2023 – page 4

While we’re still waiting to hear when the country will go to the polls, it’s evident that the Conservative’s political bid for votes is aimed at the traditional Tory heartland.

Central to their plans, is to roll back on net zero targets virtually across the board. The argument for this approach appeals to the older and wealthier in society. It will take the pressure off those with commercial and rental property to carry out expensive upgrades to meet reduced carbon emission targets.

It also frees up big energy companies to continue drilling for oil, a valuable commodity at a time when energy independence is acutely important for the UK.

In turn, that profit is recycled back into economic growth, and allows the energy behemoth to continue to pay out large and regular dividends. The appeal to pensioners is compelling.

While the policy decision isn’t popular among the young, there is an element of practicality involved. Delivering on the existing targets will be almost impossible simply because there’s not enough time to make the necessary changes. There is also the state of the economy. If we follow the policy’s effect through the chain, it will ultimately mean that the end consumer pays less. It will keep energy prices lower for longer, feeding into cheaper goods and service (in theory).

For the housing market specifically, the big announcement within this broader context was the proposal to ditch the imminent deadline for landlords to bring privately rented properties up to EPC band C. Government’s thinking is pitched to appeal to landlords, who ought to feel less financial pressure to pay for expensive property refurbishments at a time when mortgage payments are ballooning.

It’s being pitched as good for renters too; with landlords’ need to invest thousands of pounds removed, there’s less need to raise rents.

In the speech the Prime Minister gave announcing this change he said: “I know people in our country are frustrated with our politics. “I know they feel that much gets promised, but not enough is delivered. I know they watch the news or read the papers and wonder why in the face of the facts as they have them, choices are made as they are. “I know that they dislike Westminster game playing, the short-termism, and the lack of accountability.”

I’d point anyone interpreting the promise to ditch energy efficiency upgrade targets to these words.

First, the policy is contingent on the Conservatives winning the next election. Second, the political theory supporting the supposed benefit of pushing net zero deadlines back is the very definition of short-termism. It is not just environmentally short-sighted; it is economically short-sighted too. Much wetter winters and flash flooding are not something to worry about in the future, they’re a reality now. Hotter summers, record high temperatures and localised drought are also here, today and the effect that this more extreme weather has on the UK’s housing stock is already showing.

Increased subsidence as foundations shift to a greater degree in very wet and then very dry conditions. Flash flooding destroys homes wrecks lives and livelihoods. Poor insulation means higher energy bills, not lower.

Insurers and mortgage lenders are acutely aware of the financial implications of these increasing environmental risks. While some of that risk is priced into the market, a policy change that does nothing to keep a lid on that risk will necessarily mean higher premiums and higher mortgage rates. Costs are always passed back to the consumer eventually.

What in the short-term looks like sensible economic policy, could result in a much worse economic performance in the medium term. There will be more damage to residential property in the coming years with all of the cost implications that brings.

There is a financial need to upgrade the UK’s residential property stock – this should not be conflated with frustrating environmental campaigners and practical inconvenience.

It is worth noting, amid all of this, that good landlords are aware of the financial imperative of bringing their portfolios up to EPC band C. The vast majority have already completed the necessary upgrades – most critically loft and cavity wall insulation, triple glazing and proper draught exclusion. Heat pumps get the column inches, but for the majority of homes they’re inappropriate – and this is particularly true of the country’s most energy inefficient homes.

It might not be such an immediate vote-winner, but what the government could much more usefully have done had it really been interested in delivering long-term financial and environmental benefits would have been to lay out very clear guidelines on what specifically landlords (and homeowners) should do in their properties to cut carbon emissions and energy loss. That would involve proper engagement with the valuations industry and RICS in particular.

EPC assessors and Retro Fit experts must have the confidence, authority and insurability to advise landlords on the changes to make. Most landlords still in the market want to invest to future-proof the capital value of their rental portfolios. The key for whichever government is in power next is to provide a clear way to do that.

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