Improving your EPC rating could increase your home’s value by up to 20%
With more than half of existing homes carrying an EPC rating of D or below, the scale of the challenge is considerable.
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The UK government reinforced its ambition to upgrade all homes to EPC C by 2035 in its Net Zero Strategy, published in 2021.
While the energy efficiency of housing stock has improved over the last decade, progress has been slow.
The rate of retrofit needs to increase by seven-fold if the target is to be met, according to estimates from the Department for Business, Energy and Industrial Strategy.
Figures from the ONS’ Opinion and Lifestyle Survey suggest that just a quarter of households (26%) are considering improving their home’s energy efficiency.
More than one in three (36%) who were not considering making improvements said it was due to costs.
By comparing the EPC certificates of 30,000 dwellings that improved their home energy performance in the previous five years pre-and post-improvement, we estimate that the average cost spent improving a dwelling previously rated EPC band D or below to at least a band C is £9,260. Though this varies depending on numerous factors, not least the size, age and existing efficiency rating of a property.
Properties with an EPC rating in band D, for example, typically spent £5,500 on the necessary improvements to move to band C, with this figure almost doubling to over £10,000 on average for properties in bands F and G.
Green premiums
Although saving money on energy bills is often the key motivator for people to make green improvements, particularly in the current environment as energy costs spiral, there are many who also want to add value to their home, and to futureproof it for when they come to sell.
Yet, there has been some uncertainty as to whether a premium exists.
Our analysis found that homes which had moved from a D to a C rating added an additional 3% to their value over and above local house price growth, equivalent to £9,003 based on the average resale value.
Homes moving two bands from an E to C saw an average price uplift of 8.8% (£29,289), and from F/G an additional 19.6% (£64,444). The analysis controlled for changes to property size.
While the data confirms there is value in upgrading a home’s energy efficiency, this will need to be balanced with the upfront investment needed to improve it, as well as the payback time for those not intending to sell immediately.
Improvements to boost a home’s EPC include big projects like installing external wall insulation or solar panels to smaller changes such as switching to low-energy lighting.
Possible upgrades
Our analysis suggests that the improvements made by homeowners vary depending on the current EPC band of the property. Improvements to lights, insulation, boilers, heating controls, and windows are among the most common upgrades made. However, the priority of these often change with the property’s current rating.
Upgrading single glazing windows and roof insulation is more prevalent for lower band (F and G) properties, whilst low energy lighting and floor insulation improvements increase in frequency toward higher rated properties.
The installation of solar panels become an overwhelming majority of upgrades to move a property’s rating from C to B and B to A suggesting micro-generation of electricity is key to gaining top EPC ratings.
Our calculations on energy cost savings suggest moving from a D to a C rated property could save nearly £400 per year at current costs, climbing to just shy of £1,000 for those jumping two bands from E to C. This would rise further if current forecasts for energy prices come to fruition next year.
Carrot AND stick
Whilst awareness over the importance of energy efficiency in a residential context continues to rise, the question of how best to incentivise and support individual homeowners to retrofit existing stock is likely to present the most significant hurdle to meeting the 2035 target, particularly given the significant upfront costs involved.
As such, it is likely that changes to policy will also be needed to have any meaningful impact; stamp duty discounts have been mooted as one option, as have government targets for mortgage lenders to improve the EPC ratings of the homes in their lending portfolios.
The government has also proposed increasing Minimum Energy Efficiency Standards in the private rented sector to require a minimum EPC C for all new tenancies by 2025, and by 2028 for all tenancies.
Ensuring everyone can access attractive finance through discounts or better terms to borrowers on homes meeting high levels of energy efficiency, as well as grants and loans to help retrofit homes, will also encourage retrofitting.
Several high street lenders now offer ‘green’ mortgages with lower rates available for properties with an A or B rating. It’s likely that these will become more attractive as we enter a higher rate environment.
Meanwhile, housebuilders are also under increasing pressure to reduce carbon emissions. Last year, the UK’s largest housebuilders agreed to a sector-wide delivery plan to meet the government’s climate change targets via the Future Homes Task Force.
Changing buyer preferences
Some 80% of respondents to Knight Frank’s most recent Buyer Survey said the energy efficiency of their next home purchase is more important to them than it was a year ago due to rising energy prices and environmental concerns.
Asked what factor was most likely to influence their decision to buy a more energy efficient home in the future, a third (33%) of people said rising energy costs.
Meanwhile, 20% of respondents would pay more for an energy-efficient home, 20% believed the value of their home would be negatively affected if they didn’t improve its green credentials, and 13% said access to a cheaper ‘green’ mortgage would be the biggest influence on their decision.
Just 14% said the energy efficiency of a home would have no influence on their purchasing decision.