How EPC ratings are reshaping residential property values

Research is emerging that sellers are increasingly finding their potential selling price depends on the residential property's EPC rating.

This relationship has two drivers.

• Increasing energy prices will significantly hit our budgets during the shorter days of autumn and winter, and homes with poor energy efficiencies will be expensive to keep warm.
• Government regulations on minimum EPC ratings for residential properties will come into force over the next few years.

Sellers who fail to improve the EPC rating of poorly insulated homes may find they need to offer discounts as high as £20,000 on an average-priced home. There is also likely to be a significant impact on the rental market. This report is based on data provided by Money Supermarket and Rightmove

The influence of a home's energy efficiency on its price

For some time, there has been an ongoing debate on the relationship between a home's energy efficiency and its price. In other words, are sellers with a higher energy efficiency rating able to achieve higher prices?

It now seems that these questions have been answered by research carried out by Money Supermarket and the property website Rightmove. While there are significant regional variations, there is a clear correlation between the average house price in England and the property's EPC rating. The chart below shows the price increase that sellers can achieve by upgrading their energy performance rating from G to a higher value. For instance, upgrading from EPC G to EPC F can increase the average property value by 6%, while upgrading it to EPC C can increase it by 10% and to A/B by 14%.

Data extracted from Money Supermarket

While the impact is low in London and the South East, the effect on prices is highest in the North East, the South West and the West Midlands. Moving from a G rating to an A/B rating in the South West can increase property values by a staggering £19,500 and £16,200 in the North East.

We are painfully aware of the soaring energy cost in the coming months. Clearly, this will emphasise the relationship between EPC rating and energy costs. The property website Rightmove has indicated that sellers who are unable to carry out the necessary upgrades, such as lagging, to improve their EPC ratings will be penalised by buyers. To successfully sell their homes, they will have to reduce the prices of an average-priced home by as much as £20,000. The website warned that "Energy Performance Certificate ratings will become increasingly important in negotiations".

Government legislation on EPC ratings

New green regulations targeting net-zero emissions also focus buyers on the EPC rating of their new home. Under current government legislation, the government requires that all homes achieve an energy rating of band C by 2035 and all newly let properties achieve band C by 2025. In addition, existing rental properties must be rated band C by 2028.

Given the additional impact of other rule changes on lets and the pressure these are putting on landlords, the EPC changes might be the final straw that breaks the camel's back. As a result, we could see a significant decrease in properties available for rent.

Significant energy efficiency improvements are called for

The UK average EPC rating is G, so sellers have significant and potentially costly improvements to make before achieving top prices. As we have indicated, buyers will use the EPC rating to drive prices down if sellers fail to make that investment.

The rental sector outside London and particularly in the poorer areas of the country will be badly affected as we are likely to see the availability of rental properties decrease while rents increase.

Finally

Anyone thinking of selling their home in the short to medium term might be advised to ensure that they meet at least EPC band C before putting their home on the market. Failing to do so is likely to impact your selling price adversely.

For buyers, although you will need to upgrade the energy efficiency of any property you buy with an EPC rating lower than C, you will have a good argument for negotiating a significantly reduced purchase price.