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Analysing The Impact Of Energy-Efficient Upgrades On House Prices And The Housing Market

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The impact of energy-efficient upgrades on homes has become a topic of increasing interest in recent years. As the world continues to grapple with the challenges of climate change, energy-efficient upgrades have become a crucial tool for reducing energy consumption and greenhouse gas emissions. At the same time, these upgrades can also have a significant impact on the value of a home, with some studies suggesting that energy-efficient homes can command a premium on the housing market.

EPC Ratings

Energy Performance Certificates (EPCs) have become an important part of the housing market in recent years. An EPC rates the energy efficiency of a property on a scale of A to G, with A being the most energy-efficient and G being the least energy-efficient. The certificate also provides recommendations on how to improve the energy efficiency of the property. Properties with higher EPC ratings are more energy-efficient, which means that they are cheaper to operate. Rightmove reported that 47% of landlords say they would not buy a property with an EPC rating below a C in the future.

What Is The Green Premium?

The green premium is the difference in price between an energy-efficient home and a comparable home that is not energy-efficient. In other words, it is the premium that buyers are willing to pay for an energy-efficient home. The concept of the green premium is based on the idea that energy-efficient homes are more valuable than comparable homes that are not energy-efficient, as they are cheaper to operate and more environmentally friendly.

The green premium can be measured in a number of ways. One approach is to compare the sale prices of energy-efficient homes and non-energy-efficient homes in the same neighbourhood or market. Another approach is to estimate the increase in the value of a home that results from energy-efficient upgrades, such as the installation of solar panels or the replacement of windows and doors. A survey by RICS, which involved estate agents, revealed that 41% of them believed that purchasers were displaying a higher level of interest in energy efficiency.

Energy-Efficient Upgrades & House Prices

Investing in energy-efficient upgrades for a home not only reduces the property’s environmental impact but can also lead to significant energy savings, resulting in lower utility bills over time. Houses with upgrades such as heat pumps are typically considered to have a “green” premium due to their energy efficiency and eco-friendly features. Heat pumps are highly efficient and use renewable energy to heat homes, reducing the carbon footprint of a property.

Several studies have examined the impact of energy-efficient upgrades on house prices. These studies have generally found that energy-efficient homes command a premium on the housing market. Santander’s research indicates that individuals are willing to pay a 9.4% premium on residences that have been retrofitted to comply with “energy efficiency standards.” Additionally, estate agents believe that buyers would be willing to pay up to 18% more for such properties. By analysing extensive data, PriceHubble has determined that properties with poor energy efficiency are valued at up to 20% less than their energy-efficient counterparts. According to Rightmove, enhancing a property’s energy efficiency rating from an F to a C could result in a 16% increase in its value.

The reasons for the green premium are straightforward. Energy-efficient homes are cheaper to operate, which means that owners of energy-efficient homes save money on their energy bills. In addition, energy-efficient homes are more environmentally friendly, which is becoming an increasingly important consideration for many homebuyers.

The Impact On The Housing Market

In addition to the impact on house prices, energy-efficient upgrades can also have a broader impact on the housing market. One potential impact is that energy-efficient homes may sell more quickly than comparable homes that are not energy-efficient. This is because buyers may be more attracted to homes that are cheaper to operate and more environmentally friendly. Furthermore, energy-efficient upgrades may lead to an increase in the overall value of the housing market. This is because energy-efficient upgrades can reduce the demand for energy, which in turn can lead to a reduction in the cost of energy. This reduction in the cost of energy can make housing more affordable, which can increase demand for homes and lead to an increase in the overall value of the housing market. As energy-efficient upgrades become more common, builders may begin to incorporate energy-efficient features into new homes as a standard practice. This can lead to an increase in the overall quality of new homes, which can also lead to an increase in the value of the housing market.

Market Shift Concerns

This potential shift in the market poses a significant concern for mortgage lenders and their regulators, who fear a potential “disorderly transition”. Lenders are taking steps to encourage their clients to retrofit their homes by offering various incentives, including cash-back schemes and low-interest loans. Furthermore, government initiatives and financial incentives, such as the Renewable Heat Incentive (RHI) in the UK, are encouraging homeowners to switch to renewable heating systems like heat pumps. These incentives can further increase the green premium of heat pump-fitted homes, making them an attractive investment for homeowners looking to improve their property’s value while minimising their environmental impact.

Chris Brown, chief executive, and founder of Climatise states that “It is essential for the government to play a role in facilitating a smooth shift towards energy-efficient housing. The cost of retrofitting a house to reduce its impact on the environment, through better insulation and replacing a polluting gas boiler with a cleaner and three times more efficient heat pump, cannot be entirely recovered through energy bill savings”.

With looming climate deadlines and carbon budgets running out, the government’s lack of action in this area may only increases the risk of a sudden and dramatic shift in the housing market. As a result, the green premium gap may widen rapidly, emphasising the importance of retrofitting homes to improve energy efficiency and reduce carbon emissions.

WHAT OUR CUSTOMERS SAY ABOUT US

“We have used BLG for development finance for over 8 years. During that time we have found their knowledge and expertise in the property development industry to be second to none. Their loan process, pragmatic and flexible approach to lending and flexibility when required has supported our business needs throughout the period and provided us with support to deliver new homes in Bristol and the surrounding areas.”

“As property developers you never know the curve balls that you may get and a project that is great on paper may prove a bit more tricky.  This happened to us on a project that BLG have funded and throughout they have supported us.  Our business likes to be collaborative and when we hit those tough moments it really felt like we were working as a team with BLG.  If you have a decent project you can get it funded, but what you really need is a business that is there to support and advise you as well.  For us on this project it was BLG.”

“I approached BLG Development finance with an opportunity I had in Chesham, Buckinghamshire, to build 5 new build houses in 2021. My main contact was Anil Bains who is a Director covering Asset Management. Within very quick timescales, BLG provided me with indicative quotes in regards the finance levels they could offer me. Having considered those levels, I requested a valuation to be carried out which again was dealt with swiftly. We proceeded to completion. The build went very smoothly with monthly monitoring being carried out by BLG and monthly drawdown requests dealt with in a very timely manner. Due to a difficult time generally in the market in regards selling, I was in need of a six-month extension to the loan which again was appraised very quickly and granted. Having dealt with numerous funders over the last 20 years, I can only speak highly of my personal experience with BLG and would very confidently work with them again on any future projects. “

"From our side it has also been a pleasure working with BLG and the team there. We have found you easy to deal with, proactive in resolving any minor issues that have arisen through the project and shown great flexibility in working with us as a partner. We will certainly like to work with you on future partners."

“I really appreciate your hard work. We really like the way you communicate & I must say I haven't seen many people who are that approachable.”

“A very efficient processing team, dealing with the DD once deal credit approved, through to completion”

“Many thanks for your efforts on this one and getting it approved and sorted so swiftly, very much appreciated. I am sure I will be speaking to your over the coming months.”

“We had other funding options, but chose to use BLG again, as we work well with the team, who always provide very clear information and advice with a friendly approach throughout the funding process. Very efficient and always very helpful.”

“Many thanks Anil, it’s been a real pleasure working with BLG so far.  We’re lining up the next project too”

“We would recommend all staff we have dealt with at BLG, as we are very satisfied with the team and the initial offer/terms presented, then you and the funding team, through to the draw down team at valuation stage.”

“All documents are clear and the way you keep clients informed, all the way along the funding process, is refreshing for us”

“With regard to what should be improved at BLG, we work with many lenders in our business and we do not get the help and response we have had on the two projects with all at BLG on our funding for our developments.”

“We would particularly mention Dave Edwards and Tom Pitts as being central to having a smooth working relationship and being positive and helpful at all times. Their guidance in helping us navigate the project from inception to completion was invaluable. As was their patience, particularly at the beginning. We look forward to many future projects with the BLG team.”

“We would like to express our appreciation for your support on our development in Bristol. We were very pleased that, from the outset, you shared our vision of the project to convert a dated but classical building, that had outlived its usefulness as a school, into unique luxury apartments with views overlooking the city. We found our dealings practical and streamlined. Monthly payments were processed in an efficient and timely manner.”

“BLG are very good at communicating with clients and all documents are very clear and all at BLG are always happy to help.”

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