How Energy Efficiency influences Private Rental

Catherine Alexander
Partner and Mortgage & Protection Adviser at GDA

Research conducted by The Mortgage Works shows that landlords attach a premium to the price of properties that have a higher energy rating. While the scale of the premium varies across the country, evidence suggests that the impact of improving energy efficiency can, in some cases, exceed the cost of upgrading the property.

London has the most efficient properties, with 60% rated C or above, while nearly 50% of properties in the East of England are rated A-C. The North East and North West are in the middle of the pack with 42% and 40% respectively rated C or above. Meanwhile, at the other end of the spectrum, in the Midlands, less than 40% are rated C or better, while Yorkshire and The Humber have the least efficient properties, with only 25% rated A-C. Much of the regional variation is likely to be due to the age of the stock and differences in the mix of properties.

Rental Income Premium Map

Landlords can also achieve higher rental income on properties that are more energy efficient, which helps them to recoup the costs of investing in energy efficiency improvements over time.

As you might expect, average costs to improve older properties tend be higher, particularly for those built before 1919, where the average cost to upgrade to a band C is over £10,000 (based on 2022 costs). Properties built more recently tend to be more energy efficient, so fewer improvements are required in order to bring them up to C standard. For example, the average cost to update a property constructed after 1990 that is currently rated D-G to C standard is around £5,000.

Rental Property Upgrade Costs Map

Differences in the age and property type of the housing stock across the country drive variations in the average upgrade costs across the country.

At the moment, the beneficial effects on property prices and rental incomes are not likely to be sufficiently large enough to entice landlords to upgrade all of their properties to the highest energy ratings possible, because the payback period does not make it economically viable for them. It would need additional changes to property market policy to support and incentivise landlords moving forwards. This has been shown to have an impact in the private rental sector, for example with the introduction of minimum energy ratings.

References
1. Private Rental Energy Performance Report (2024). The Mortgage Works.

This article isn’t personal advice. If you’re not sure whether a course of action is right for you, ask for financial advice.