24 March 2022

Policymakers must consider unintended consequences of going green

Richard Rowntree, Managing Director for Mortgages, Paragon Bank

Figures published by the Department for Business, Energy & Industrial Strategy (BEIS) highlight how powering our homes contributes 16% of the UK’s total emissions. Knowing this, it is clear why reducing residential energy expenditure is a key facet of the drive towards the Government’s 2050 net zero target.

While supporting this ambition is more important than ever before, policy aimed at ushering in a new age of green homes must be designed to mitigate any unintended consequences.

One repercussion that would undoubtedly have a far-reaching negative impact is a reduction in privately rented homes.

The Government’s own figures reveal how policy implementation of the past has had dire consequences for the UK’s second largest housing tenure - as a result of Stamp Duty and tax changes, since 2015, the number of PRS properties has declined by 600,000, according to the English Housing Survey.

But how does this relate to today?

Office for National Statistics data highlights how rents have recently increased at the fastest rate for five years. While spiralling energy costs and increases in other landlord overheads are likely to be contributing to this, restricted supply of stock is also acknowledged as a key factor.

By analysing the scale of the issue, we see how poorly implemented policy has potential to exasperate the current constriction of supply and further increase rents.

In the private rented sector (PRS), a notable shift in sustainability has been seen since the introduction of buy-to-let mortgages in 1996. Today, 38.3% of privately rented homes are deemed to be sufficiently energy efficient, having EPC ratings of C or above, compared to 35.5% of owner-occupied properties.

Despite this progress, millions of privately rented homes will need to be upgraded to meet the proposed new standards which will require properties let for new tenancies to be rated EPC A-C by 2025, with all tenancies mandated to meet the same standard by 2028.

The turnover of PRS stock renders the 2028 deadline inconsequential in many cases, meaning that the bulk of lets will need to meet the new standards by 2025 or shortly after.

Hamptons data suggests that some landlords are pre-empting these timescales. The proportion of EPC A-C properties purchased has increased from 33% in 2020 and 39% last year to around half so far in 2022.

While this is clearly positive, competition for greener properties will only intensify as we approach the deadline and there is also the issue of homes already in the sector.  If landlords change tact and target only A-C rated homes, it’s good news for the PRS but means that the problem of properties currently rated below C falls at the feet of others.


The profile of PRS stock, a substantial proportion of which was built pre-war, means that it will require costly retrofitting to benefit from the green technology of today.

As it stands, landlords are expected to spend no more than £2, 500 per property to ensure they are rated EPC E or above, the standard required currently.  Under the proposals, this cap would increase to £10,000. Based on this, analysis of Paragon’s book reveals that the average cost to upgrade a property to EPC C is £7,212.

Landlords surveyed indicated that this work would be funded by rent increases in just under four in 10 instances.

Lenders can also have a role here and we’re working on products that will be perfectly suited to the retrofitting challenge. In developing these, we’re trying to look beyond traditional lending as we understand that landlords will need to consider more than just where they can borrow money.

Aside from the cost, anyone who has tried to undertake any home improvement work in the past year or so will be able to attest to the shortage of labour and materials that is being blamed on Brexit and the pandemic. 

In addition to the issue of finding a way for those that have the will, we also need to consider the investors who will see retrofitting as too costly and burdensome. A third of landlords surveyed indicated that they would not carry out the necessary works, either selling or only continuing to let their properties up until the deadlines. Again, this means that the problem of meeting the EPC requirements will simply be passed on.

Reassuringly, it seems that policymakers are engaging with the industry in a bid to get it right. A formal consultation on the proposals was launched by the Government in 2019 and more recently, I’ve met with representatives from both HM Treasury and BEIS to discuss the issue, something I’m sure other industry figures will have also done.

We eagerly await an update on this issue, hoping for policy that helps to deliver homes that are sustainable, affordable and plentiful.

To find out more about Paragon’s green buy-to-let mortgage products please visit: Green Products | Buy-to-Let Mortgages | Paragon Bank


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