Land­lords: up­grade homes or face £5,000 fine

The Daily Telegraph - Your Money - - FRONT PAGE - Sam Mead­ows

A dead­line for buy-to-let in­vestors to im­prove en­ergy rat­ings is loom­ing. Sam Mead­ows looks at how to get fund­ing

The land­lords of al­most 300,000 prop­er­ties will need to up­grade their en­ergy ef­fi­ciency by April or face sev­eral thou­sands of pounds in fines. The worst-rated prop­er­ties in the coun­try must be im­proved to a new min­i­mum stan­dard in three months’ time, be­fore a new ten­ancy in the pri­vate-rented sec­tor can be of­fered. In 2020, no ex­ist­ing ten­an­cies can be ex­tended un­less they sat­isfy the new cri­te­ria.

Land­lords that fail to meet the tar­get risk be­ing fined £5,000 per prop­erty. Ac­cord­ing to the lat­est English Hous­ing Sur­vey, re­leased in 2017, 6.3pc of the 4.5 mil­lion prop­er­ties in the pri­vate-rented sec­tor were rated an “F” or “G” – the low­est pos­si­ble – in 2015-16. This means there could be as many as 285,000 prop­er­ties in need of work.

As a min­i­mum, homes must be up­graded to an “E” rat­ing. Ad­di­tion­ally, the Gov­ern­ment’s Clean Growth Strat­egy aims to up­grade ev­ery home to a “C” rat­ing by 2030. Cur­rently only 26pc of pri­vately rented homes sat­isfy this re­quire­ment.

The changes have the po­ten­tial to mas­sively cut en­ergy costs for ten­ants. The av­er­age an­nual bill for some­one liv­ing in a “G” rated prop­erty is £2,860. Up­grad­ing the home to an “E” rat­ing cuts this to £1,710, while an A or a B-rated prop­erty costs just £750 a year. The cur­rent pro­pos­als, which are yet to be fi­nalised by the Gov­ern­ment just three months be­fore their im­ple­men­ta­tion, would cap the up­front cost of up­grades for buy-to­let in­vestors at £2,500 per prop­erty. This will be payable only if no other fund­ing is avail­able.

Buy-to-let in­vestors have three op­tions for fund­ing. The two main sources are the Green Deal and the en­ergy com­pany obli­ga­tion, or “Eco”. An­other op­tion is loans and sub­si­dies from the Gov­ern­ment.

Orig­i­nally a gov­ern­ment-run scheme, the Green Deal was scrapped fol­low­ing very low take-up. It was taken over by the Green Deal Fi­nance Com­pany, a pri­vate en­ter­prise, in Jan­uary.

The com­pany gives a loan for en­ergy im­prove­ments, which is then paid off by ten­ants us­ing the sav­ings made on en­ergy bills. Crit­ics ar­gue this is an un­pop­u­lar op­tion as ten­ants have to pay. The com­pany re­fused to re­veal how many loans it is­sued in 2017, cit­ing com­mer­cial sen­si­tiv­ity.

Un­der Eco, en­ergy sup­pli­ers are ob­li­gated to fund en­ergy im­prove­ments, such as in­su­la­tion.

Some lo­cal au­thor­i­ties will also pro­vide grants to buy-to-let in­vestors.

If none of these fund­ing op­tions is avail­able, land­lords will have to foot the bill them­selves. How­ever, if the to­tal cost of work is more than £2,500, they can ap­ply to the Gov­ern­ment for an ex­emp­tion. Un­til the cap is agreed, any land­lord fac­ing up­front costs will get an ex­emp­tion.

The Depart­ment for Busi­ness, En­ergy and In­dus­trial Strat­egy said the av­er­age cost of up­grades was more likely to be £865. A spokesman said: “Our pro­pos­als send a clear The Green Deal was in­tro­duced in 2012 to pro­vide fund­ing for land­lords to up­grade their prop­er­ties.

Loans were first is­sued from Jan­uary 2013.

In the first six months, 38,259 Green Deal as­sess­ments were car­ried out, but only four signed up for a loan.

The scheme was scrapped by the Conservatives in 2015. In twoand-a-half years only 15,000 loans were taken up.

That, along with the strip­ping back of other fund­ing, has put pres­sure on the en­ergy ef­fi­ciency in­dus­try.

The Green Deal Fi­nance Com­pany has since be­gun to is­sue loans again. sig­nal to land­lords that they need to im­prove in­ef­fi­cient prop­er­ties, but they will only have to pay for these mea­sures if they are un­able to find third-party fund­ing.”

Richard Jones of the Res­i­den­tial Land­lords As­so­ci­a­tion said he was dis­ap­pointed that the Gov­ern­ment had aban­doned the prin­ci­ple of no up­front costs to land­lords and said fund­ing needed to be made avail­able.

Ahead of the dead­line, some land­lords are buy­ing up homes that are less en­ergy ef­fi­cient and work­ing on them in or­der to boost their yield.

Adrian Miles, a builder, now owns 12 prop­er­ties – a mix of com­mer­cial and res­i­den­tial – in the West Mid­lands.

In one ex­am­ple, Mr Miles pur­chased a home five years ago for £70,000. He spent £30,000 on up­grades, which in­cluded en­ergy ef­fi­ciency im­prove­ments such as in­su­la­tion, and the house is now worth closer to £200,000. He said he charged his ten­ants £775 a month in rent – an 11pc yield.

“It’s just a case of do­ing qual­ity up­grades for the right price,” he said. “It’s not so much how much you do, but where you put in in­su­la­tion and get­ting the qual­ity right.”

As a builder, Mr Miles uses his own com­pany to carry out the work, keep­ing costs low. But for others there are fund­ing op­tions avail­able.

Gary Hem­ming, of bro­kers ABC Fi­nance, said land­lords could get a re­fur­bish­ment mort­gage, which would cover 75pc of a prop­erty’s value and 100pc of the cost of works. Once the works are com­pleted, they can re­fi­nance with a tra­di­tional buyto-let mort­gage.

“With yields get­ting lower and prof­its squeezed these kinds of val­ueadds are vi­tal,” said Mr Hem­ming. “A lot of this sort of work is ap­peal­ing to ten­ants any­way, as it makes the house a nicer place to live.”

Home­own­ers aged 55 or more with­drew an es­ti­mated £3bn from their prop­er­ties in 2017, the largest amount ever recorded. The fig­ures, from spe­cial­ist fi­nan­cial plan­ners Key Re­tire­ment, show that bor­row­ing by this group jumped by 40pc on the pre­vi­ous year – driven mainly by those who wanted to spend on re­fur­bish­ments.

Any­one over the age of 55 can use a “life­time mort­gage”, also known as eq­uity re­lease, to draw on the value of their home. The ma­jor­ity used some of the money to fund home im­prove­ments, said Key Re­tire­ment.

The loans re­quire no monthly re­pay­ments, with the in­ter­est rolled up un­til it is re­paid, usu­ally on the bor­rower’s death. Most lenders guar­an­tee the to­tal amount of debt will never ex­ceed the value of the bor­rower’s home. Most rates are fixed for life.

How­ever, some of the big­gest lenders have in­tro­duced higher fixed-rate charges for bor­row­ers in cer­tain regions, namely Lon­don and the South East, where prices are higher and ar­guably more at risk of a cor­rec­tion.

On its “Flex­i­ble Max Plus” plan, eq­uity re­lease lender Le­gal & Gen­eral charges cus­tomers in Lon­don and the South East 5.72pc, while bor­row­ers else­where pay 5.66pc. On a 20-year, £71,500 loan the Lon­don bor­rower would pay an ad­di­tional £2,584 in in­ter­est, ac­cord­ing to re­search by ad­viser Later­liv­ing Now!

Adrian An­der­son of An­der­son Har­ris, a mort­gage bro­ker, said: “This is all about lenders manag­ing their risk, and this is just one fac­tor they will use to set pric­ing. It’s frus­trat­ing for con­sumers and some will see it as un­fair. Lenders have to be care­ful the dif­fer­ence doesn’t be­come too large.”

Le­gal & Gen­eral said it aimed to boost eq­uity re­lease out­side Lon­don and the South East, which tra­di­tion­ally ac­count for the bulk of the mar­ket.

In­sur­ance com­pany Aviva, an­other ma­jor player, said that while a post­code had a min­i­mal im­pact on its in­ter­est rates, it would be more sig­nif­i­cant in terms of the amount you could bor­row. Bor­row­ers in ar­eas deemed to be more high risk in terms of value may find their bor­row­ing capped.

Adrian Miles is one land­lord who bought cheap, en­ergy-in­ef­fi­cient prop­er­ties and im­proved them to boost rental re­turns

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