Can the mortgage market avoid another category of mortgage prisoners?


The law of unintended consequences is looming its ugly head again.  When the Chief Executive of UK Finance highlights an issue at its annual mortgage lunch there really is a problem brewing.  So, what is the issue?  Mortgage prisoners.  Not the traditional mortgage prisoner, borrowers who can’t move lender because they can’t meet current underwriting requirements, but borrowers who bought a house that no longer meets eco-fashions and that is uneconomical to upgrade to modern standards.

While landlords have embraced the requirement for rented properties to have an EPC rating of ‘E’ or above since 2018, it’s the EPC ratchet, and in particular the tight ratcheting timeline, that is raising concerns.  On any measure, the proposed timelines are ambitious.  In two years’ time all new tenancies will need an EPC of ‘C’ or above, and by 2028 all existing tenancies will require such a rating.

Let’s face it, it won’t be the first time that governments have not considered the behavioural implications of their policies. 

Buildings are responsible for around 40% of the UK’s total carbon emissions and improving the energy efficiency of rented properties is considered an important step towards reducing the country’s carbon footprint.  Government objectives in raising all EPC ratings are laudable if net zero carbon emissions are to be achieved by 2050, but the question being asked is why landlords should bear the brunt of government policy and why landlords are the ones being forced to install insulation, upgrade heating systems, and improve ventilation etc.

The question is, have law makers thought through the unintended consequences and the increasing risk of a new category of mortgage prisoners?  Let’s face it, it won’t be the first time that governments have not considered the behavioural implications of their policies.

Policy is easy to make, but often difficult for those effected to implement.  The challenges faced by landlords are significant and include:

  • Lawmakers didn’t consider the cost involved with raising EPC levels in tenanted properties. Improving the energy efficiency of a property is expensive, and landlords are not often able to pass this cost on or recover the cost by increasing rents.  This is a significant burden for landlords, particularly those who own multiple properties or who have limited funds.
  • The practicalities of carrying out improvements has not been considered. Many landlords face challenges when it comes to gaining access to their properties, particularly if they have difficult tenants or if the property is occupied for much of the year.  Do lawmakers really expect landlords to evict tenants in order to carry out the work or extend gaps between tenancies, both of which can be lengthy and expensive.
  • Retro-fitting energy efficient infrastructure into older properties is not always a simple task, it’s a bit more complicated than changing a few lightbulbs. Often the work is further complicated by the challenge of finding qualified, experienced, and able contractors to do the work!

While improving the energy efficiency of tenanted properties is undoubtedly an important goal, the challenge for landlords should not be underestimated.  Those advising landlords who are concerned about becoming a mortgage prisoner, because of EPC changes, can help them with proactive steps to mitigate the impact.  Firstly, the sooner landlords start the process to improve their properties EPC ratings the better, even ‘little by little’ helps, and any improvements may also increase the attractiveness of the property to prospective tenants.  Landlords can also review their current mortgage arrangements and speak to their advisers to discuss options such as remortgaging or switching to a fixed rate mortgage.  Some lenders are already beginning to restrict buy to let loans by EPC rating, so reviewing arrangements sooner rather than later could be beneficial.  It may also be worth exploring the government’s Green Homes Grant scheme, which may provide some financial assistance for energy-efficient upgrades to rental properties.  This is no time to dither, it’s time for mortgage advisers to focus on buy to let consumer needs and focus on good outcomes for their clients.


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Partner - Baxters Business Consultants - a business consultancy undertaking marketing, training, freelance journalism and expert witness services to the residential mortgage lending, building society and financial service industry (April 1993 to date) -

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