As the Governor, Andrew Bailey, announces his plans to install heat pumps at the Bank of England, we are increasingly hearing that properties with better energy efficiency features are able to fetch higher asking prices.
The most recent Residential Market Survey from the Royal Institution of Chartered Surveyors (RICS) revealed surveyors are anticipating a decline in house prices across England in the coming year.
However, amidst this overall downward trend, 58% of surveys reported that homes with improved energy efficiency credentials are managing to maintain their value in the current market. Furthermore, 34% of contributors reported a noticeable increase in buyer interest specifically towards homes that prioritise energy efficiency.
From a surveying perspective, however, we have yet to see a direct correlation between a property’s Energy Performance Certificate (EPC) rating and the price buyers are willing to pay for it.
While the promise of lower energy bills from more energy-efficient properties may be a factor for some buyers, I suspect that, for the most part, a more plausible explanation for the RICS observations might be that properties with better EPCs often coincide with a broader range of upgrades or renovations that naturally enhance a home’s energy efficiency. For example, modern windows or a loft conversion that provides better insulation.
Negative media
I am sceptical about how focused the majority of buyers are on a property’s EPC at the moment, especially given some of the negative media coverage around the so-called energy efficiency installations, such as heat pumps.
While Bailey might be keen to go down the heat pump route, he may well be in the minority. We continue to read reports of poorly-installed pumps, frequent breakdowns, and potential increases in heating bills, all of which will have filtered through to buyers and can’t be doing the wider EPC cause any good.
It could even be argued that a property with a heat pump installed might deter certain buyers, let alone encourage them to pay a significant premium.
The rental market however presents a different narrative, with a property’s EPC rating seemingly more of a driving force behind demand for some rentals.
One surveyor’s account in the RICS report states, “Tenants are increasingly interested in renting energy-efficient properties, with some corporations refusing to view properties unless the EPC rating is C or above.”
This trend is likely influenced by corporate entities that have set their own well-meaning energy efficiency targets and implemented policies accordingly. Given the much-publicised eventual need for all properties in the rental sector to carry a C rating or above, this is a trend we may see more of.
If we start to see increased demand from tenants for more energy-efficient homes, this is also likely to result in more landlords upgrading their properties, something we may already be seeing.
A recent survey from Rightmove found that the proportion of rental properties with an EPC rating of A to C that were previously for sale has increased by 16% since January 2019, while the proportion of rental properties entering the market with a D to G rating that were previously for sale has decreased by 11%.
Lack of supply
However, the rental market is still suffering from a severe shortage of properties which means prospective renters cannot always afford to be picky, as one surveyor in RIC’s report highlighted; “The market is such that the demand is still outweighing the supply so tenants cannot afford to be choosing based on EPC [for] the fear of missing out.”
In the absence of legislative measures specifically addressing EPC ratings in the rental market, properties even with an E rating will continue to be in high demand due to a lack of supply.
Once we see some formal legislation around EPCs announced for rental and residential properties however, and better financial incentives for homeowners to improve their property, it will only be a matter of time before buyers are willing to pay more for a property with a better EPC rating.
However, at this stage, we haven't quite reached the point where a property’s EPC is having a direct impact on its price, not in the residential market at least.
Simon Jackson is Managing Director of SDL Surveying
References;
https://www.telegraph.co.uk/business/2023/07/06/andrew-bailey-install-heat-pumps-bank-of-england-net-zero/
https://www.rics.org/news-insights/market-surveys/uk-residential-market-survey
https://www.rightmove.co.uk/press-centre/landlords-invest-in-higher-epc-rated-properties/
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