EPC deadline already hurting landlords wanting five-year fix mortgages

Buy-to-let lenders are looking to future-proof their mortgage portfolios by reassessing how they lend against properties with lower energy efficiency, according to new research.

A minimum energy performance certificate rating of band C will be mandatory on all properties starting a new private rental tenancy agreement from 2028 and for all private rented homes from 2030.

Therefore landlords now seeking a five-year fixed rate buy-to-let mortgage secured against a property with an EPC rating below band C could be refused a mortgage before these net zero deadlines hit.

A new report from property data insights and workflow firm Cotality suggests that some lenders are already considering how these net zero deadlines affect what properties they lend against.

The report finds evidence that some buy-to-let lenders are currently laying the groundwork to ensure they limit their own exposure to “net zero risk” when approving new loans.

Others plan to integrate with more “dynamic data sources” for new buy-to-let lending and refinance to help modernise how they assess property-level environmental risks and energy performance.

The research highlighted a number of potential sources of data, including:

• Smart meter data, which can provide near real-time insights into actual energy consumption patterns;
• Half-hourly electricity usage and pricing data, available to suppliers and aggregators with consent, offering fine-grained energy profiles;
• Weather and flooding data from the Environment Agency and the Met Office;
• Satellite and aerial imagery for monitoring land movement and surface water;
• Open geospatial datasets from Ordnance Survey and local authorities;
• The government energy performance certificate database; and
• Property-level retrofit and building improvement records, where available, from local councils or industry schemes.

The report also found that some lenders have not yet fully worked out how net zero deadlines will affect their future lending appetites.

Furthermore, a significant proportion of buy-to-let lenders admitted their access to this type of data was still too “patchy” to allow them to make well-informed enough decisions.

At a closed event launching the report in June, key representatives from lenders and valuation firms warned that this could lead to intense competition to lend against EPC band A, B and C private rented homes within one or two years.

This could leave private landlords with less efficient properties at a disadvantage when trying to secure buy-to-let mortgage finance before the government’s net zero deadlines come into force.

Mark Blackwell, chief operating officer at Cotality UK, says: “There is a clear desire in lenders to act to mitigate the impact of climate change, starting with the climate risk sitting on their own loan books.

“There’s an imminent regulatory deadline that requires them to do it, but during our research we found that without more robust data inputs and better access to model scenarios, many aren’t as far on as they want to be.

“There are ways to address this and our research highlighted that lenders are taking a wide range of approaches. What was common to all though, is that meeting the challenge of net zero is not straightforward, and it will require the co-operation of all parts of the market to achieve it in such a short time.”

This article is taken from Landlord Today