As inflation hits the headlines for the first time in decades and interest rates rise despite the spread of Omicron, fixed and variable rates remain in the foreground for many mortgage professionals, and what increases in interest rates will mean for customers.
Meanwhile, and perhaps under the radar for many, the issue of Energy Performance Certificate (EPC) ratings for properties has the potential to be a time bomb for homeowners, first-time buyers (FTB). ) and rental owners (BTL).
The transition to a more sustainable world is of course welcome. But in today’s inflationary landscape and with the escalating energy crisis, it is becoming increasingly important for mortgage advisors to discuss EPC ratings with clients to better promote long-term financial peace of mind.
The double shock of Brexit and the pandemic on supply chains continues to cause shortages. It is now passing the supermarket shelves and knocking on the doors of millions of homes, with the number of energy providers plummeting and supply and demand forcing bills to climb.
The government grant of £ 5,000 for heat pumps is spearheading the transition from gas boilers. Estimates suggest that replacing a G-rated gas boiler with an air source heat pump could cut heating bills by up to £ 375 per year.
However, not everyone will be able to afford the remaining cost beyond the grant, while these savings will not be as significant for everyone. Meanwhile, energy prices continue to rise, further reducing savings. Such factors are likely to have important consequences in terms of financial well-being.
Despite this, many homeowners still don’t know their EPC ratings, with consequences ranging from simply failing to reduce household bills to falling property values and even forced sales. As is often the case, FTBs are likely to foot the bill.
By 2025, owner properties will be legally required to hold an EPC rating of at least “C”; two steps higher than its current “E” rating. The cost of these required improvements could run into the thousands, which not everyone can afford. To compound the problem, such an assessment may be impossible for buildings such as Victorian Patios, potentially forcing homeowners to vacate their properties.
Likewise, as the net zero journey accelerates, selling properties with sub-optimal ratings could become more difficult, even leading to a situation where both homeowners and first-time buyers cannot secure returns. competitive mortgage deals and property values deteriorate.
What can advisors do?
Advisors need to put more emphasis on EPC ratings at the point of sale, allowing them to stay ahead of changing requirements and better serve customers. It’s important to remember that bricks and mortar are just as important as ISAs, SIPPs, and IHTs when it comes to financial planning, with mortgages and related bills often being the biggest expense for many.
EPCs should therefore become the cornerstone of the mortgage advice process, with advisors educating clients on the benefits of EPC improvements, as well as potential pitfalls ahead. The importance of brokers across the market is also likely to increase as a result, given their position to quickly recognize nuances in client situations.
“Green” mortgages will also play a role, having the potential to reduce costs and provide incentives for home improvement. At the same time, if BTL owners start selling inefficient homes, it’s likely FTBs will be there to pick up the leftovers. However, it can get expensive if a property does not qualify for green mortgages; impacting financial results and forcing FTBs, often already facing affordability barriers, to pay even more. It is important for mortgage advisors to consider these questions when speaking with clients.
The importance of good financial advice
Advisors should keep abreast of the latest grants available, not only to save clients’ money, but also to reduce confusion and ensure that grants and clients match appropriately. Such confusion has been seen with the recent government grant for green homes, which was criticized earlier this year for failing to help low-income homes improve their property on a large scale. As the government’s “green upgrade” continues to change, the need for advisers to stay up to date becomes vital.
These problems and the lingering uncertainty clearly underscore the importance of good financial planning. And with that, mortgage advisors will play a growing role in helping clients create a breathing space in their finances and ensure that investment risks and time horizons remain appropriate.
Simon Broadley, Managing Director, Tenet Mortgage Solutions