How Victorian housing stocks can get affected with new rules

Highlights 

• The UK government is all set to revise the UK’s ageing housing stock that accounts for around 20% of the country’s CO2 emissions.
• UK’s Victorian Housing stock may lose some value if further energy efficiency regulations are implemented, leaving homeowners in worry.
• Energy Performance Certificates (EPC) is a rating scheme that ranks properties between A and G on the basis of the building’s energy features.

 

The Boris Johnson government is all set to revise the UK’s ageing housing stock that accounts for around 20% of the country’s CO2 emissions, with aim to have maximum homes as possible to reach a C rating by 2035, with private rented homes still set a precedent.

UK’s Victorian Housing stock may lose some value if further energy efficiency regulations are implemented, leaving homeowners in worry. According to Rightmove, about three in five homes are D rated or worse. However, Office for National Statistics (ONS) data shows that homes build before 1900 have an E rating on average because of lack of double glazing and poor insulation.

According to UK government, reconstruction of homes to meet the target will cost up to £65 billion and homeowners are expected to pay the bill. 

Also read: Income investors, here are 3 housing stocks to buy

What is an EPC rating?

Energy Performance Certificates (EPC) is a rating scheme that ranks properties between A and G on the basis of the building’s energy features, such as used building materials, insulation and heating systems, with an A rating being the most efficient and G the least. 

The study should be managed by an accredited energy assessor and entered into government-approved software to generate a score ranging from 0 to 100 for the EPC, simplified into A to G band.

The score is effective for 10 years and if the property is sold or rented, homeowners have to arrange new one and if anyone fails to have one under these circumstances may be fined. 

EPC rating can be boosted by ensuring adequate loft, upgrading to double or triple glazed windows, underfloor or cavity wall insulation, hot water tank insulation and draught proofing.

Currently, there is no legal need for homeowners to have a minimum EPC rating, but landlords need to achieve a minimum EPC of E to rent a property. So, homeowners living in energy inefficient homes are worried and under pressure to upgrade their homes. Householders may take help from mortgage lenders to enhance the energy performance of their homes.

This included proposal to establish a target-based approach for enhancing the energy performance of lenders’ portfolio via a portfolio average target of EPC band C by 2030, the government is also engaged in analyzing the feedback. It may lead mortgage lenders be more alert while lending properties with EPC ratings below C.   

If this come into effect it could disrupt the market, as if less efficient properties will be hard to purchase it will affect its value and make it less attractive.

EPC Ratings

Band A- 92+ (most efficient)

Band B- 81 to 91

Band C- 69 to 80

Band D- 55 to 68

Band E- 39 to 54

Band F- 21 to 38

Band G- 1 to 20 (least efficient)

Also read: Why UK stocks are still vulnerable to sudden shocks?

What can homeowners do?

Currently, there is a small price gap between energy inefficiency and energy efficiency.  According to Savills, there is gap of around £9,840 between an average household with an EPC C and an EPC E rating, while this increase to £ 47,605 when compared to EPC B to EPC F.

Over the past year, a third of property executives had seen an increase in demand for energy-efficient homes, for more than three quarters said the EPC rating had little or no impact on its sale price, while only 23% believed that it had no impact, according to a recent Rics survey.

The UK government is yet to impose any regulation or EPC rating of C on UK properties, but it may affect the UK’s Victorian housing stock, forcing homeowners to either see the value of their home fall or upgrade.

The cost of upgrading a home from an E to a C rating is over £17,000 on average, but it may vary depending on the specific needs of each property.

According to Liquid Gas UK, the average cost of the gas grid, replacing oil with a low-carbon heating alternative is £30,000 and the average cost of a heat pump system range between £11,000 and £18,000. Various homeowners living in Victorian homes across the UK will unable to afford the renovation costs without government support.

Depending on a homeowner’s situation and type of property, small pockets of funding are available, which includes Energy Company Obligation, Local Authority Development Grants and Home Upgrade Grants, but for majority, people have no choice other than to do it themselves or wait for further government intervention.

To support homeowners with funding, national and regional strategies need to be established to address the major reconstruction challenge that lies ahead, and the government could begin incentivizing homeowners to start renovating their homes to reduce VAT on green home upgrades. If may encourage more people to install low carbon technologies and enhance energy efficiency.

Developers may reclaim VAT when converting non-residential building or on new builds or homes that have not been lived in for 10 years, but Victorian homeowners looking for reconstruction with all the latest energy saving improvements are not liable to do so.

Also read: Boohoo (BOO) & Tesco (TSCO): Which retail stock you can buy now?