The Dangerous Myth that all Landlords have Deep Pockets

property investment

In recent times the UK government has certainly jumped aboard the eco-friendly bandwagon, promising financial assistance, which more often than not fails to materialise. While ongoing energy efficiency improvements targeting rental properties are admirable, who will pay for these improvements?

The National Residential Landlords Association (NRLA) has been forced to step forward to defend the position of private landlords. Under current proposals, landlords across the UK will need to find up to £10,000 to improve the energy efficiency of their properties. However, the assumption that all private landlords are in a position to fund these improvements is a dangerous myth.

Supporting energy efficient properties

The UK government closed a consultation on energy efficiency improvements in the rental market back in January 2021. Even though the NRLA was heavily involved in consultation with the government, there’s been no feedback as yet. The government proposals are relatively simple:-

  • All new private rental tenancies should be in homes with an energy performance certificate rating of C or higher by 2025
  • This will be rolled out to all private rental properties by 2028

You can find out the rating of your property by going to the government website here. 

While landlords appreciate that improvements in energy efficiency will ultimately filter through to property values, the upfront costs could be high. When you consider that the average private landlord receives a net income from property of no more than £4500 a year, funding a £10,000 investment would be challenging.

Cost of energy efficiency improvements

Amidst all the good intentions of improving energy efficiency, it is crucial to grasp the current situation. At this moment in time:-

  • 58% of private rented properties have an energy rating below C
  • 32% of private rented properties were built before 1919 and will be expensive to renovate

Currently, it is unclear who would pick up the excess bill for any energy efficiency changes costing more than £10,000. However, the NRLA is calling for a regional approach which would include:-

  • Linking landlord contributions to the average rent in the area
  • Using Valuation Office Agency (VOA) figures as a basis for these calculations
  • Tapering landlord contributions from £5000-£10,000

The NRLA has also gone a step further, suggesting a range of fiscal measures to encourage and support investment:-

  • Development of a decarbonisation tax allowance
  • Removing VAT from energy efficiency and low carbon work
  • Suspending council tax on redundant properties undergoing energy efficiency improvements

All parties involved in the move towards more energy-efficient housing understand and appreciate the long-term benefits. However, penalising landlords unable to fund such renovations would be another nail in the coffin of the UK private rental market.

Future of buy to let properties

There is no doubt that the attractions of buy to let properties in the UK have reduced somewhat in recent years. Additional charges, never-ending regulations and more power in the hands of tenants are not helping to sell the idea of investing in buy to let homes. After all, the UK is dependent on private rental properties simply because local councils undertook a vast sell-off of homes in the 80s, 90s and turn-of-the-century.

Quite why private landlords appear to be an easy target for additional fundraising exercises, in effect cash cows to fund UK government eco-friendly targets is a mystery.

Summary

There is a general misconception, sown by politicians from all parties in recent years, that all private landlords have deep pockets. Recent changes to the sector, reducing financial attractions, have already seen many landlords sell up and move on. Unless the government takes a more understanding approach to funding energy efficiency renovations, it is difficult to see material new investment funding emerge.

Indeed, we know that many private landlords have been considering their positions over the last few years. So will this be the straw that broke the camel’s back?

 

Written by Julie Hanson

Julie is passionate about property – development, investment and portfolio planning. Along with husband Alec, Julie is actively building a property portfolio while helping others to do the same.

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