The past year has been a tough one for us all. We started 2023 with predictions of seeing the base rate cap out at 4.25%, and hoping the new year would mark the end of the mortgage market madness we saw in 2022 (see Trussonomics).
Hindsight is, of course, 20/20 and we now know this wasn’t to be the case, so where does it leave us?
Landlords have felt the brunt of the challenges this year. Faced with rising mortgage costs, a plethora of regulatory changes, the abolition of Section 21, periodic tenancies (a real problem for student landlords), a property portal (which no one really knows much about)… the list goes on.
I think landlords should still be looking to make energy-efficiency improvements
Speaking with landlords daily, it’s clear that the two biggest concerns are rising interest rates and, until very recently, the changes to Minimum Energy Efficiency Standards (MEES).
Positively, since the start of September things have moved apace on mortgage rate pricing. There has been a wave of fixed-rate reductions, which all borrowers will welcome.
We’ve also started to see house prices soften. Zoopla reports that prices have fallen for the first time since 2012 — down 0.5% over the past 12 months.
Landlords can rely on rents continuing to increase for the foreseeable future, having seen a 9.3% rise in the second quarter of 2023, according to Rightmove.
Labour may reinstate the proposed EPC changes if it wins the next general election
These factors combined mean the potential yields from buy-to-let (BTL) properties are only increasing. If landlords can take stock of where they are in terms of their current portfolio, they may find new opportunities to boost their property investment journey.
As rate pricing continues to soften, I’m confident that borrowers who have put off their remortgage plans will start to explore their next refinance options, meaning brokers can let out a big sigh of relief.
Sleepless nights
The MEES changes would have required all newly let properties to have an energy performance certificate (EPC) rating of C or above by 2025, extending to all rental properties by 2028. It was assumed there would be exemptions (à la MEES 2020), but this was only ever speculative as details were always few and far between.
These proposed changes, combined with a potential review of how EPCs were calculated, and a bit of a question mark around the deadlines, put off many landlords from making any energy upgrades at all.
I highly doubt lenders will scrap their green mortgage product ranges
There’s also the fact the average cost of making the improvements would have been over £10,000. Many landlords were having sleepless nights.
In September, however, the government surprised the sector when it scrapped the proposed changes. So, for now, the minimum EPC requirement on let properties will not change.
This news will be a relief for many landlords. The financial implications of getting properties to the minimum C rating had started looming and become a significant burden. Landlords already had to navigate the challenging economic landscape of the BTL market. One less thing to worry about is more than welcome.
On the other hand, a large cohort of borrowers will feel understandably frustrated with this news. According to Shawbrook Bank, 80% of landlords had prepared for the EPC regulation changes, and almost half (46%) had spent between £500 and £20,000 on improving or investing in their property.
If landlords can take stock of where they are in terms of their current portfolio, they may find new opportunities
I think landlords should still be looking to make energy-efficiency improvements. The latest JLL 2023 Tenant Survey Report reveals that 90% of tenants view energy-efficient properties as an important or crucial factor when considering their next home.
Landlords with more energy-efficient properties can charge higher rents to meet the ever-growing demand for these types of property. This means better yields as well as the savings they themselves will make with a greener property.
There’s also the fact that Labour may reinstate the proposed EPC changes if it wins the next general election. And it’s unlikely (we hope) the current government will ignore the impacts on climate that abandoning these changes will have, so we could see new expectations for the sector soon.
All these factors combined show the benefits of having a more energy-efficient property.
Landlords have felt the brunt of the challenges this year
I highly doubt lenders will scrap their green mortgage product ranges. These allow landlords to save money on their mortgage, and I’m interested to see how the sector will make these products more competitive and offer enough incentive to draw in new landlords.
So, to recap: there are no looming MEES changes to worry about; better rental yields are on offer; and mortgage interest rates are settling to a new normal (for good, this time). Autumn heralds a better, less worrisome landscape for our landlord peers.
Jeni Browne is sales director at Mortgages for Business
This article featured in the October 2023 edition of MS.
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