EPC ratings and their growing importance

First published by Best Advice

Correlating EPC levels and carbon emissions is like comparing apples to oranges

Last month, I looked at the issue of EPC ratings in light of COP26, and what the Government is already committed to introducing in order to improve the energy efficiency of UK housing stock, and what it might have to do in order to meet its carbon emission targets.

As a start, and this is a very important point, when we are looking at EPC levels and carbon emission targets we are not necessarily comparing apples with apples. In fact, some might argue that there is significant discrepancy between the two – in other words, improving the EPC ratings of properties in this country doesn’t necessarily seamlessly intertwine with cutting carbon emissions, although it’s likely there will be a benefit worth pursuing in focusing on the former.

There is also a point to be made about what else the Government has at its disposal in order to ascertain the energy (in)efficiency of UK housing stock. The answer is not much at all, and it’s therefore it is likely it will have to continue to put its eggs into the EPC basket in order to try and secure the improvement that will at least move it along the road to lowering carbon emissions.

Landlords the test subjects for household EPC levels

As we noted last month, landlords are effectively the ‘guinea pigs’ first in the queue when it comes to this strategy based on improving EPC levels. At present, properties with an EPC rating below E can’t be let out, and this will move up to C in 2025.

In other words, landlords are going to need to review the latest EPC rating for their properties, to try and work out what improvements are required if they are not already at a C rating, and to then carry out the necessary improvements to make that grade when it’s required. There is some leeway in terms of ongoing tenancies, etc, but effectively they’re going to need to decide pretty soon how they go about this.

Now, of course, this is pertinent and relevant to landlords, and let’s just say that we are working on products that are going to help them in making these decisions and we’ll be talking about those closer to launch. However, landlords are a small minority of the overall UK home-owning population and it may well be that this isn’t truly registering with Joe Public when it comes to their homes, the energy efficiency of them and where the Government direction of travel might be.

Stamp duty charges based on EPC levels proposed to incentivise household energy efficiency

However, just recently, there were proposals put forward by a body called the Energy Efficiency Infrastructure Group (EEIG), which if taken up by the Government would have a much more widespread impact. Indeed, it would impact every single person buying or selling a property because these proposals would see changes to stamp duty charges based upon the EPC level of the property being bought.

Now, before I outline how these proposals would work, it’s important to recognise that the EEIG have vested interests here, namely in terms of membership which will clearly benefit from such policies which would mean homeowners having to have the work they carry out on their homes. Put in place a policy where stamp duty is different depending on the EPC and you can understand why its members would be in favour and would benefit from it.

Essentially, the policy works like this. Whatever stamp duty band your property is in, you would pay less stamp duty, the better the home’s EPC rating is. So, for a £250k new-build property with an EPC rating of A, the purchaser would pay £853 in stamp duty, were as a 1900s property with an EPC rating of A would cost the purchaser £4,796, more than double the current rate of £2,500 for all purchasers of £250k homes.

However, there are also stamp duty rebates built into these proposals. Buy the home with a rating of E, pay the extra stamp duty, but carry out the work to raise its standard within two years, and the owner would be eligible to a rebate on the duty they paid. It’s an incentive to carry out the work quickly but, as you might imagine, it’s not going to come cheap – the EEIG estimate it would cost £14k to secure the rebate.

Again, you can understand why the EEIG would suggest this. Their members would carry out this work, their members would build the new homes at these higher EPC ratings which, one presumes, would be more in demand because of the stamp duty saving, and it ticks boxes in terms of an incentivised structure in order to try and improve the energy efficiency of the UK’s homes.

Are improved EPC ratings enough for us to meet carbon emission targets?

But how much will it go towards meeting those carbon emission targets? Will it over-complicate a stamp duty system which is already deemed too complicated? Many commentators want to get rid of stamp duty in its entirety in order to stimulate activity were the Government ever to go down this route, what then for such proposals?

According to The Telegraph, the Government now wants all homes to have an EPC rating of C by 2035. That has yet to become law although it may well ask lenders to ensure their property portfolios have an average C rating by 2030, which would clearly require action from the lending community, at which point they might also want the Government to intervene in order to support them.

As I mentioned last month, this issue is not going away and it’s going to become much more important in the years ahead. Changes will happen, measures will be brought in and it’s important we, as a surveying practice, have the solutions to help all parties meet the new requirements. Whether the Government wants to change the stamp duty system to support this is another matter entirely, but it will certainly need to change something.

Simon Jackson is managing director at SDL Surveying

 

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