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Why a property’s EPC could soon impact its valuation

First published by Financial Reporter

Could a more eco-conscious consumer base drive new valuation practices?

At present, the vast undersupply of properties on the market means most buyers do not have the luxury of being able to shop around for the most energy efficient one.

As market conditions calm somewhat – potentially towards the latter part of this year – this could start to change.

We are already starting to see homebuyers becoming more eco-conscious and as the UK strives to reach its carbon neutral goal by 2050, this is likely to gather pace.

Recent research from Savills shows 59% of prospective buyers would be willing to pay more for a home powered predominantly by renewable sources.

EPC awareness on the rise

While seven out of 10 surveyed said a home’s Energy Performance Certificate (EPC) played an important role in their decision to buy a property, with almost a third (31%) saying they attribute more importance to the EPC than they did a year ago.

As awareness around green issues gathers momentum – hopefully also spurred on by an increased take-up of ‘green mortgages’ – a new generation of more environmentally aware homebuyers may soon emerge.

We will also likely see more homebuyers and owners explore ways in which they can make cost savings as the energy increases start to bite.

Energy price hikes fuel the search for more energy efficient homes

Since 1st April – no ‘fool’ I’m afraid – the energy price cap has risen by around 54%, equating to roughly a £700 increase per year for an average household. Come October, Ofgem will introduce a new price cap, which is widely expected to be a further 20-30% increase on top of the recent 54%, just as we head into the winter months.

The increase in costs could mean we start to see more energy-efficient features creep up the wish list of property hunters.

However, at present, a property’s EPC has no bearing on its valuation – something which might come as a surprise to some. That is not to say a homeowner who has spent a sizeable amount on energy-efficient measures such as new windows and a boiler, will not see this reflected in the valuation. If, however a surveyor is presented with two identical properties, one of which carries a B EPC rating and the other a D, the one with the B rating would not gain a higher valuation based on its EPC alone. Not at the moment at least.

A plan for EPC reflective valuations

This could change however when the Government eventually finalises its plans around what will be expected of homeowners and landlords in respect of EPC ratings.

If, as expected, it becomes a legal requirement for properties to carry an EPC rating of ‘C’ or above from a certain date, this could have a notable impact on how a property is valued. A price differential could also start to emerge between those properties that already meet the standard and those that require money spent on them to meet it.

If a property needs £20k of upgrades in order to achieve a legally-required C banding, for example, while another near identical property already carries a C rating, this would need to be reflected in its valuation.

A lot hinges on what legislation the Government introduces around EPC standards – something we should hopefully get clarification on soon.

A plan with no immediate action

Given the cost of living crisis, it is perhaps understandable that the Government appears to be dragging its heels somewhat around announcing the changes.

Saddling homeowners and landlords with the extra cost of upgrading their properties is unlikely to go down well – not at any time, but certainly not during a year when inflation is expected to hit 10% and interest rates are on the rise.

On the other hand, the climate clock is not going to stop ticking and if we are to keep global warming below 1.5% and reach net zero emissions by 2050, the Government needs to act sooner rather than later and ensure we have enough time to plan for the changes ahead.

Simon Jackson is chief executive officer at MSS

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