When making investment decisions, many buy-to-let investors are considering green credentials of properties, alongside rental yields and opportunity for capital growth.
New research by Hodge reveals buy-to-let investors are starting to put more importance on the energy efficiency of properties. In a survey of landlords, investors and brokers, 82% of respondents said environmental friendliness and energy efficiency were a top consideration when purchasing properties.
Green credentials even made it in the top three considerations when making decisions on property investments, along with the opportunity for capital growth and rental yields. Hodge also pointed out that other recent research is indicating that people are prioritising living more sustainable lives.
A Savills report revealed 26% of people consider the environment the most important issue facing the country. Additionally, research by Opinium showed 78% of the public feel they have a personal responsibility to deal with the climate crisis. Many of the people included in this research will be renters, showing the need for more eco-friendly properties.
Property priorities are changing
To stay competitive, buy-to-let investors need to adapt to these tenant preferences and the changing market. Investors, along with property developers, will need to provide more choice in sustainable housing options moving forward. And it’s positive to see investors are already prioritising green credentials.
Andy Button, head of investment finance at Hodge, says: “The buy-to-let market is particularly buoyant right now with demand continuing to grow throughout the pandemic, and it’s interesting to see how the priorities for landlords are changing when looking to add to their portfolio.
“While rental yield and potential for capital growth are, of course, top priorities our research reflects a change in mood of the market, where sustainability and green credentials are becoming ever more important.”
New-builds in high demand
The government has a target to reduce greenhouse gas emissions to net zero by 2050. Improving the energy efficiency of housing will play an important part in achieving this. There is even talk that the government could further increase minimum EPC ratings for properties in the private rented sector in the coming years. Currently, all privately rented properties need to achieve a grade E or higher.
With the latest environmental standards, new-builds are greener properties. The majority of new-build properties have an A or B EPC rating. Higher green standards are even being introduced. This will further lower energy consumption and reduce bills for occupiers.
New-builds are more appealing to tenants compared to old, tired properties. The high environmental standards and lower bills provide benefits to tenants. This makes energy efficient new-builds ideal for buy-to-let investment. Because of this, good quality new-builds are becoming increasingly sought after.
Andy adds: “It’s clear that sustainability will feature more and more in new build development design, and more stringent compliance to EPC, and an investment strategy more closely aligned to sustainability could actually improve cash flows in the longer term, as tenants might be prepared to pay higher rents, in exchange for lower utility costs.
“Our research suggests that investors are very much alive to the longer term benefits that having sustainability credentials in a portfolio can afford.”
The rise of green mortgages
A survey by Mortgages for Business revealed interest for green mortgages among buy-to-let investors has increased sixfold. And as this interest has been on the up, more lenders have been launching mortgage deals for energy efficient properties.
Green mortgages offer preferential rates directly linked to the EPC of properties. Buy-to-let investors are welcoming the benefits of lower interest rates when investing in energy efficient properties.
This is providing added incentives for investors to focus on green credentials. This trend will further gain steam in the coming years. Because of this, green mortgages will likely become the norm in the lending market.