Double Your Money With Property Investment – Property Elevator #6

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Yogesh Patel returns for £400,000 to be invested into his Property Investment Deal, claiming it will double your money in returns. Will one of the 5 Property Angels invest, or has Yogesh broken too many hearts after his visit last season?

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OPINION: The EPC ratings system is “not fit for purpose”

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Every since I started to market one of my commercial buildings around 10 years ago now, I began to doubt the efficacy of the EPC rating system.

The guy that came along to do the inspection told me himself he had just completed a 6 week course, or whatever it was, to train to be a building inspector. He explained to me how the computer system would calculate the dreaded EPC rating once he went away and entered all his data.

I say dreaded because I knew the building would probably produce a low rating, solid walls, 3 combination boilers that I had installed 15 years ago and no double glazing, though there was roof / ceiling insulation.

Low rating

Sure enough the rating was low, I can’t remember now what it was but probably a D or even an E. But it was the EPC system’s recommendations that shook me. It was suggest I fit solar panels on the roof! Not a mention of uprating the boilers to condensing ones, or insulating the walls, let along fitting double glazing? When I questioned him, he said, that’s what the computer says. It was truly bizarre!

I’m not condemning every EPC inspection. When they are carried out by a competent assessor, and I’ve had some done since by chartered surveyors that gave me much more confidence, but the fact remains that the algorithm built in to the EPC calculation produces misleading results.

A flawed system

The Government is looking to have as many homes and commercial buildings as possible to be EPC rated at band C or above by 2035. But what experts are telling us is that as property owners go green they are being punished by a ‘Flawed’ energy performance certificate system. It means that upgrades can actually lower a property’s rating.

In the worst case scenario, property owners and householders risk spending tens of thousands on energy efficiency upgrades that can actually make their properties less valuable, thanks to the Government’s “flawed” Energy Performance Certificate (EPC) system.

When owners come to sell in 10 or 15 years’ time they could find themselves trapped as banks would mark down values. Cheaper mortgages would be difficult to access, despite having spent money making their properties more energy efficient.

Inconsistencies in the EPC rating system

Inconsistencies in the existing EPC calculation mean that property owners currently can pay out thousands of pounds for work that, when they come to sell, they find actually lowered their EPC rating.

The energy sector has been scathing about the system. The EPC rates buildings from A to G but experts are saying the current system is “not fit for purpose” because the rating is based on the cost of energy used, not on the actual carbon emitted into the atmosphere. It results in a system that punishes people for installing heat pumps because they use more electricity and LPG gas because it’s more expensive than natural gas – it incentivises the use of mains gas over electricity or LPG.

Tom Spurrier, of the UK Green Building Council, a leading industry body, has said:

“We have currently got a metric that incentivises gas because it is cheaper.” If you install a heat pump, which is powered by electricity, your EPC rating may actually fall. Properties with Liquid Petroleum Gas (LPG) are also marked down because the gas is more expensive than mains gas.

Landlords affected first

If the Government wants all private homes to be EPC band C by 2035, private landlords are going to be affected first because of plans to introduce a band C requirement for new lets by 2025, and for existing lets by 2028.

Owner occupiers will also be hit and landlords will be required to have an average band C ranking for their portfolios by 2030, leading to homeowners in the worse-performing properties paying higher mortgage costs. There is a risk that private homes that cannot meet the target could become un-mortgageable.

Commercial landlords

In the case of commercial buildings, a Government consultation envisages a phased implementation with an interim milestone of an EPC rating of C by 2027, leading on to an EPC rating of B by 2030. The thinking behind having an interim milestone is to encourage landlords to take action before 2029-30, while providing some flexibility to allow landlords to plan and implement improvements into their tenancy cycles.

Each milestone would follow two year ‘compliance windows’: 1 April 2025 – 31 March 2027 for an EPC rating of C and 1 April 2028 – 31 March 2030 for an EPC rating of B. At the beginning of each window, landlords will have to present a valid EPC.

By the end of each window, landlords would have to show that they have achieved the relevant threshold or have registered an exemption. Any exemptions would need to be refreshed at the start of each compliance window. The intention is that, even where an exemption is registered, landlords should demonstrate that the building has achieved the highest EPC rating that is possible to deliver cost-effectively.

It is made it clear that landlords can bypass the two stages and go straight to B if it is more cost-effective and minimises disruption for tenants when doing refurbishments and improvements.

Room for improvement

There are some rather bizarre outcomes to the present EPC system that need to be tackled if the above targets are to hold any credence with property owners and energy specialists.

David Simms, a small-scale developer and landlord in London told The Daily Telegraph that when he redeveloped a block of flats in Clapham, he paid out £10,000 to install energy-efficiency improvements, including insulating the building.

“The EPC rating went from a B to a borderline D because we put in electrical heating. It was like being kicked in the face,” he said.

The solution, according to the EPC assessor, was to revert the heating system back to overnight storage heaters. This was despite the fact that this would increase the total energy usage.

On another redevelopment cited by Mr Simms, he installed double glazing, energy-efficient lighting and an electric boiler. Again, the EPC rating fell from D to E and he says, “The assessor told me if it had been a gas heating system it would have gone to a B.”

These sorts of anomalies in the EPC rating system go directly against the Government’s aim of reducing, then eventually banning, the use of natural gas boilers and encouraging heat pumps, for which they are offering £5,000 grants.

Jess Ralston, of the Energy and Climate Intelligence Unit, a non-profit organisation, told The daily Telegraph:

“EPCs are so focused on cost, they forget the environmental impact. If you install a heat pump, you will be punished.”

When the EPC system was designed back in 2007, said Mr Ralston, electric generation was very different to now. Ten years ago, electricity use produced more than twice as much carbon as natural gas, but now it is half that of gas.

Mr Spurrier says that:

“In terms of overall net zero, we need to switch as much as we can to electricity, But because the EPC system has not changed, it incentivises property owners to do the opposite. Pressing ahead with EPC targets without reform will be extremely problematic. We don’t want to embark on a policy using a tool that is not fit for purpose.”

David Adams, of the Energy Efficiency Infrastructure Group, an industry body, says:

“The EPC system is completely inadequate to tell you how good a dwelling is and how much improvement it needs. People now may have completed on a house and be completely unaware of the liabilities they are taking on.”

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Ministry of Justice Consultation to enhance legal support for those facing eviction or repossession

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The Ministry of Justice 8 week consultation sets out a new approach to the delivery of legal aid for housing possession proceedings. The proposed changes will improve access to legal aid for anyone at risk of losing their home and provide holistic advice to individuals most in need.

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Rent increase hostage to windows?

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Hi, My tenants have not had a rent increase for the last 3 years and I need to do this now. Unfortunately, they are refusing the rent increase and tenancy renewal unless I fix the windows.

The windows have some mist collecting between the two panes of double glazing.

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Demand for rental properties at ‘highest level ever’, landlords tell survey

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Landlords say demand for rental properties is at a historical all-time high, a poll by the NRLA has discovered.

The survey of private landlords across England and Wales, conducted in partnership with the research consultancy BVA/BDRC, found that 57 per cent confirmed that demand for homes to rent had increased in the third quarter of 2021 – up from 39 per cent in the second quarter of the year.

At the beginning of the first Covid lockdown in the second quarter of 2020 just 14 per cent of landlords reported tenant demand having increased.

In a sign of recovery in the market, landlords operating in London have seen a significant increase in demand compared to the levels reported throughout the pandemic as workers returned to the capital.

Workers return

68 per cent of landlords operating in outer London reported demand having increased, up from 25 per cent in the third quarter of 2020. In central London, 54 per cent reported increased demand, up from 16 per cent at the same time last year.

Elsewhere, landlords operating in the South West reported the strongest demand with 79 per cent saying that demand had increased in the third quarter of the year.

This was followed by 74 per cent in the South East (excluding London), 73 per cent in Wales and 71 per cent in the West Midlands.

Despite the booming demand, the same proportion of landlords plan to reduce the number of properties they rent out as plan to increase them at 19 per cent.

Ben Beadle, Chief Executive of the NRLA, says: “As demand picks up following lockdown measures, we need a stimulus to support responsible landlords to provide the homes to rent we vitally need.

“Without this, it will ultimately be tenants that suffer as a result of less choice, higher rents and the resulting difficulties they will encounter when looking to become homeowners.”

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Minister rejects calls to clamp down on landlords who evict tenants illegally

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The government has rejected a bid to strengthen the way illegal evictions are dealt with and to give tenants more protection.

During a debate in the House of Lords, shadow spokesperson for communities and local government, Baroness Blake of Leeds, urged them to insert a clause into the Offences under the Protection from Eviction Act which would force the police to provide councils investigating an offence with the information they needed.

She said there was a failure to enforce the law against criminal landlords, due partly to local authority budget cuts which meant there were too few tenancy relations officers.

“Where the police do not recognise the criminality of these tactics on the part of landlords, it leads to underreporting of incidents and to those reported being routinely classed not as a criminal offence but as civil matters or breaches of the peace,” she told peers.

Baroness Jones of Moulescoomb warned that the problem of illegal evictions would only get worse during the winter following the end of Covid restrictions as many frustrated landlords would want to kick people out of their homes, with some knowingly or unknowingly trying to evict them without following the correct procedures.

She said: “Many police wrongly conclude that this is a civil matter and not a criminal one. We know this could not be further from the truth.”

Distressing activity

However, Home Department Minister Baroness Williams of Trafford said that while the distressing activity had no place in society, local authorities and the police already had mechanisms in place to work collaboratively to tackle criminal landlords. She added: “If there is an issue, the solution here is not more legislation.

The existing powers we have are sufficient but I accept that it is incumbent on the police and local authorities to work collaboratively to tackle crime in their areas, including on illegal eviction investigations.”

The amendment was withdrawn.

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BLOG: It’s time private landlords took a wider role in providing social housing

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This winter will be a perfect storm for homelessness in the UK, as rising rents, energy and food prices, combined with the end of several government support initiatives, including the universal credit uplift and the furlough scheme.

For households already in arrears from Covid-19, and Citizens Advice believe that half a million more renters have gone into arrears since the first lockdown in 2020, the next few months and years could be when the true impact of the pandemic is finally felt.

Even before Covid, however, the UK was already facing a significant homelessness problem.

The government, in collaboration with local council and not-for-profit organisations, rallied during the pandemic to provide temporary emergency relief for frontline homelessness.

The Big Issue believes it is significantly cheaper to prevent homelessness proactively than to let it spiral, yet while the weight of responsibility still largely falls on the public sector to do so, it is the UK private sector that is now largely responsible for social housing.

In fact, privately-run housing associations have provided the majority of social homes since they outstripped local councils for the first time in 2008.

And private landlords, while benefitting from Right to Buy policies which saw socially rented properties move into private hands, have also increased their share over the years, largely due to the ongoing undersupply and underfunding of social rental housing.

Doubled in size

Since the high of 2003, homeownership in the UK has fallen from 71% to 64%, and the private rental market has doubled in size in that time, with this type of housing being particularly common in cities, for lower-income households and young adults.

It is why there must be more collaboration between the public and the private sector if we are going to tackle the upcoming homelessness crisis, whether that be homelessness via domestic violence, rough sleeping, substance misuse or no-fault evictions.

For several reasons, housing supply in the UK is incredibly unresponsive to demand: construction faces an affordability issue, while demand for social housing always outstrips supply as prices are kept significantly below the market level. It is therefore up to us to focus on how existing stock can be better utilised.

The majority of social homes in the UK are now provided by private, non-profit organizations that offer low-cost housing for those in need of a home, but private landlords and investors can still play a larger role.

Guaranteed rent

If you’re a landlord, using your property for social housing means you still benefit from a guaranteed rental income at market value from housing providers, paid each and every month, even if the property is empty.

It also comes without all the normal stresses involved with renting a property, and a fully managed service that includes regular property inspections at no extra cost.

Providing low-cost transitional housing in this way can provide additional income to landlords with long-lease agreement of up to five years.

It also gives landlords the opportunity to become part of the solution, and to make a positive social impact with their properties.

Homelessness takes many forms and the people companies like Lotus Sanctuary often help are not often who you’d expect to be homeless.

Domestic abuse

For example, 61% of homeless females in the UK are victims of domestic abuse or violence and Parliament believes this problem, while typically difficult to measure, rose exponentially in lockdown with evidence that cases are escalating in seriousness and complexity, with Dame Vera Baird referring to it as the “epidemic within the pandemic.”

Safe accommodation is needed for these victims but is not always able to be provided by local council, especially if you consider this means being housed in the same area as your perpetrator.

This is just one example of where private landlords can step in, move quickly, and be able to assist people who need urgent accommodation. With more access to housing the private and public sectors can work together to the benefit of each other, as well as those who need it.

Gurpaal Judge is the founder and CEO of Lotus Sanctuary, a community-interest company on a mission to house and empower vulnerable people facing homelessness.

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