What Do Investors Need to Know About Energy Efficiency in Rental Properties?

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Reece Pape Property Writer

Reece Pape

Reece Pape is a property writer at RWinvest. Reece is passionate about keeping property investors updated on must-have information and housing market news, utilising the latest property market statistics and data.

Climate change is – as you’d expect – affecting all parts of life, including every industry.

Property investment is no different.

With an estimated 40% of the UK’s carbon being emitted by households, it is no surprise that the government has selected the property market as one of the key areas for regulation in matching their target of net zero by 2050.  

New EPC Targets

Currently, there is a Bill under discussion that could mean that, by April 2025, any property let to new tenants will need to have an energy performance certificate (EPC) rating of C or above.

Anyone looking to dodge this, unfortunately, you’re out of luck.

Any property that does not comply could face fines of up to £30,000.

If this becomes law, there’s no doubt that investors will need to adapt their approach.

In fact, it is estimated that three in five (58%) homes across the UK have an EPC rating of D or lower –  around 12.6 million properties.

It’s clear then that investment will be needed nationwide to improve the energy efficiency and sustainability of residential properties.

However, this is not to say that these adjustments should only be treated as a legal obligation.

Firstly, it gives you a chance to embrace your inner eco-warrior and is a vital step in improving carbon emissions and combatting climate change.

Secondly, for both investors and homeowners, this is a fantastic opportunity to increase the profitability of your properties.

Electricity Usage

When it comes to ensuring a property is energy efficient, the best place to start is to look at its electricity usage, which is relatively easy to improve.

A study by Energy Saver found that simply changing from older, inefficient lightbulbs to Energy Star rated LED bulbs could lead to an almost 75% reduction in energy consumption and last for around 25 times longer than their predecessors.

Another report from Which? found that new condensing boilers can increase efficiency by around 34% compared to older models and can, in turn, reduce fuel bills by an estimate of 30%.

As older boilers begin to be phased out, any property housing one will almost definitely be faced with a hefty bill, as the costs for spare parts and repairs will undoubtedly increase exponentially.

Making small changes such as these will go a long way in reducing energy bills, as well as lowering any maintenance costs.

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Invest in Eco-Properties

Rather than improving an older property’s insulation or energy output, you can also invest in eco-properties.

An eco-property is precisely what the name implies – a development purposely built with sustainability in mind and is often made with environmentally-friendly materials and low carbon technology.

ELEMENT – The Quarter is the first of this kind to release in the North West of England and boasts rather impressive technology to boost sustainability – such as its Central Business Management Server, a system that can monitor and regulate energy consumption in the entire development, and a rainwater recycling system that harvests rainwater for use in toilets and irrigation. 

Properties like these are quickly becoming a hot item for both investors and tenants in 2022, with new developments like Heaps Mill following suit and employing the use of similar advancements (like Air-Source Heat Pumps) as leading features.

With the potential introduction of these measures, eco-properties tailored for sustainability could be perfect for those looking for a more energy-efficient investment.

0% VAT on Energy Efficiency Materials

As announced in the recent Spring Statement, there will be a cut in VAT for homeowners purchasing energy-saving materials such as insulation, heat pumps, and solar panels.

So, for the next five years, you will pay 0% VAT on any materials to improve the energy efficiency of your property.

This also means that you can expect to see tax savings worth around £1,000 upfront and an annual energy bill saving of around £300.

Read another one of our articles to learn more about eco-investments.

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