How Will the Heat and Buildings Strategy Affect Landlords?

Property Investments UK have published the following:

What is the Heat and Buildings Strategy?

The Heat and Buildings Strategy sets out a plan for how the UK will decarbonise homes and commercial, industrial and public buildings. It is part of setting a path to net carbon zero by 2050.

The Government says that there are around 30 million buildings in the UK and that these produce almost a quarter of all UK emissions. It says that dealing with the carbon emissions produced by heating and powering buildings will not only cut carbon emissions but save money on energy bills, improve lives and support up to 240,000 skilled green jobs by 2035.

A key aim of the Heat and Buildings Strategy is to significantly cut carbon emissions from buildings in a simple, low cost and green way while ensuring that this remains affordable and fair for households across the country.

The Heat and Buildings Strategy itself is contained in a policy paper issued by the Department for Business, Energy & Industrial Strategy or BEIS. The Heat and Buildings Strategy builds on the commitments made in the energy white paper, ‘Powering Our Net Zero Future’, ‘Clean Growth: Transforming Heating’ and ‘The Ten Point Plan for a Green Industrial Revolution’. This strategy aims to provide a clear direction of travel for the 2020s, set out the strategic decisions that need to be taken this decade and demonstrate how net carbon zero will be achieved by 2050.

The Heat and Buildings Strategy comes with a commitment to invest £3.9 billion over the coming years. This includes £450 million for the Boiler Upgrade Scheme, £950 million for a Home Upgrade Grant Scheme, £800 million for a Social Housing Decarbonisation Fund, £338 million for the Heat Network Transformation Programme, £1.425 billion for a Public Sector Decarbonisation Scheme and £65 million for the Flexibility Innovation Programme.

How the Heat and Buildings Strategy will Affect Landlords

The Heat and Buildings Strategy will affect landlords in a number of different ways. Landlords will need to consider new ways to heat their properties, will have new rules to contend with, and may need to invest more in their properties.

Landlords May Need to Find New Ways to Heat Their Properties

Providing heating and domestic hot water is an essential part of the facilities provided in every rental property. Currently, most properties are heated either using gas boilers or electricity or a combination of both. The Heat and Buildings Strategy may change this, however.

Under current proposals, gas boilers could be banned in new builds from 2025. Under current proposals, new gas boilers or replacements may be banned in existing properties as of 2035. By 2050 all heating methods used in buildings should be low carbon.

The Heat and Buildings Strategy means methods of providing clean heat will be favoured. The Government will introduce measures that should mean these methods will cost the same or less than heating provided by fossil fuels.

The Government has already announced a Boiler Upgrade Scheme to encourage the fitting of heat pumps in homes. It is possible other new methods of clean heating, such as boilers powered by hydrogen, will become available and will be encouraged.

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Under the Heat and Buildings, Strategy gas could be made more expensive and electricity could be made cheaper. This will affect landlords who pay these bills in their property (such as in an HMO or serviced accommodation) as well as their tenants who pay their own utility bills.

Landlords May Need to Comply with New Energy Efficiency Laws

Currently, the energy efficiency laws landlords must comply with are relatively few. However, the Heat and Buildings Strategy means there could be many more rules landlords will need to abide by.

Currently, every rental property must have a valid EPC or Energy Performance Certificate when it is rented out. This must be of at least band E on a scale of A-G. The EPC may need to be of at least band C by as early as 2025 or 2030 at the latest.

There is also a target for mortgage lenders to have an average band C across their lending book by 2030. So it could become difficult for landlords to get buy-to-let mortgages to buy a property with poorer EPC ratings in future.

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Landlords May Need to Invest More in Their Properties

The Heat and Buildings Strategy may mean landlords need to invest more money in their properties to keep them lettable and compliant with new rules.

At the moment gas and electric heating are relatively cheap to install and maintain. Methods of clean heat are currently more expensive to install and maintain. For example, while installing a new gas boiler typically costs around £2,000-£4,000 a heat pump can cost an average of £13,000.

Landlords may also need to meet the cost of upgrading their properties, with new insulation for example, so that they meet higher EPC ratings.

Under current tax laws improvements to a property are considered to be capital expenses. So the cost of upgrading a rental property cannot usually be claimed as an allowance against rental income for tax purposes unless a specific allowance enables it. Repairs and essential replacements of existing appliances like gas boilers can be claimed as an expense, however.

It is likely there will be grants available to help with the cost of some types of investment that landlords, as well as homeowners, will be able to take advantage of. The Boiler Upgrade Scheme is an example. Landlords will need to take a proactive approach to find out about and apply for any grants.

The Heat and Buildings Strategy: Good or Bad News for Landlords?

In some ways, the Heat and Buildings Strategy does not seem to be good news for landlords. The Heat and Buildings Strategy will likely make life more expensive and more complicated for landlords.

However, as well as helping towards net carbon zero it is likely that landlords who keep up to date with the latest measures will be able to give their properties an advantage in the market. If a landlord invests in energy efficiency measures that make a rental property warmer and cheaper to run it could make that property easier to let and potentially help it to attract a higher rent. Similarly, if a landlord is unable or unwilling to make their property energy efficient it could make it more difficult or even impossible to let in future.

When considering the Heat and Buildings Strategy it is important to bear in mind that it is not a law as such yet. What new laws might emerge from the strategy has not been fully decided and everything could be subject to change.

Many experts suggest the Heat and Buildings Strategy will not go far enough to meet net carbon zero targets so many more measures will be needed over the next few years and many of these will affect landlords too.

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