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Buy-to-let mortgages on rise – but landlords would rather quit than meet new eco rules

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There are more buy-to-let mortgage deals available now than at any point during the pandemic, including ‘green’ deals – but some landlords are considering leaving the market due to incoming energy efficiency rules.

The number of deals on the market has reached more than 2,700, according to Moneyfacts, the highest since March 2020 and an increase of nearly 1,000 annually.

It is also 365 more than were available in July 2019, ahead of the pandemic. 

Waste of energy? Availability of buy-to-let mortgages is improving, but some landlords are reticent to take advantage because of upcoming regulations around EPC ratings

Waste of energy? Availability of buy-to-let mortgages is improving, but some landlords are reticent to take advantage because of upcoming regulations around EPC ratings

As well as launching more products in general, lenders are increasingly offering mortgages that reward landlords with energy-efficient properties, as the Government moves to make less energy efficient homes effectively difficult to rent out within the next 15 years. 

But despite these incentives, some landlords have told This is Money they would rather quit the market than spend money bringing their properties up to the required standard.  

The Mortgage Works – the landlord arm of Nationwide and one of the UK’s biggest buy-to-let lenders – has re-introduced loans with 20 per cent deposits after withdrawing them at the beginning of the pandemic. 

They are available for purchase and remortgage with two-year fixed rates starting from 2.49 per cent with a 2 per cent fee and five-year fixed rates starting from 2.99 per cent with a 2 per cent fee.

However, the one key difference from the previously available products is that they are now only available on properties that have an EPC energy efficiency rating of C or above.

Just 2 per cent of homes currently make the A and B grades, while around 85 per cent are either C or D, according to the latest English Housing Survey. Around 13 per cent, more than 14 million, are rated E, F or G. 

Improving homes by adding better insulation or replacing gas boilers can cost tens of thousands of pounds – and some landlords say it is not worth it.  

For certain older homes, it might not even be possible to get up to a EPC C rating. 

Energy efficiency rules ‘by far the biggest threat’ to landlords 

Despite the mortgage incentives on offer, some landlords told This is Money that they were not planning to bring their properties up to scratch and that instead they wanted to quit buy-to-let. 

Most wanted to be anonymous because they did not want their tenants to find out that they wanted to sell before they had finalised their plans. 

One portfolio landlords told us: ‘Of all the punitive recent legislation and anti-landlord changes, nothing comes close to the impending minimum C rating. 

‘It is this alone that will cause me to sell my buy-to-let properties, and I suspect a large number of others. 

‘My properties are old and as such will take a ridiculous amount of money to bring up to a C, even if that were possible, which I suspect it will not be.

‘It is by far the biggest threat to the buy-to-let market and it is within plain sight.’ 

TMW is the latest of many lenders to launch mortgages that are conditional on a property’s green credentials. 

Most are offering higher loan-to-values or lower fees to landlords that own properties with an EPC C or below, though there are some offering better interest rates.  

The Department for Business, Energy and Industrial Strategy is currently consulting on proposals to increase the EPC requirement to a C rating for all tenancies by 2028.

BEIS has said that mortgage lenders could play a key role in meeting the Government’s energy efficiency targets for housing, and suggested that they could be required to track and annually disclose the average Energy Performance Certificate rating of the properties they lend against. 

‘Improving would cost me £5k – and I could be forced to upgrade again’ 

 London-based landlord Peter S. told This is Money: 

‘One flat I own is a pretty Georgian one-bed in North London. All my tenants over 20 years have loved living there, as I did for seven years when younger, and I am always at hand to deal with any problems.

‘The EPC rating is now just below the standard, but to increase it to legal level, I must install gas central heating (being so small it has always been fine with Dimplex heaters). 

‘This will cost me about £5,000 to install, but all signals are gas will then be banned due to environmental costs. 

‘The constant upgrading of requirements is making my business, which has provided great safe and comfortable living for tenants over the years, simply unviable.’

In its announcement of the new deals, TMW referenced the BEIS consultation as the driver behind its decision to only offer the mortgages on homes with an EPC of C or above.

Daniel Clinton, head of The Mortgage Works, said: ‘With impending regulation on the horizon affecting minimum EPC standards across the PRS, we are taking pro-active measures through our lending proposition to support the transition.’  

This week, Paragon Bank expanded its ‘green further advance’ mortgage range, as one of several lenders to venture into this market.

Further advance mortgages allow property owners to access funds to improve their homes.  

Paragon’s new 20 per cent deposit further advances are available for landlords who have four or more mortgaged buy-to-let properties, which are rated A-C, in England and Wales.

One way of improving a home's EPC is by installing better insulation - but some landlords say making improvements isn't worth the cost and they would rather sell their properties

One way of improving a home’s EPC is by installing better insulation – but some landlords say making improvements isn’t worth the cost and they would rather sell their properties

Initial fixed rates start at 3.75 per cent and there are no fees. 

Other lenders that have offered special mortgages or incentives based on EPC ratings this year – either to landlords or owner-occupiers – include NatWest, Nationwide, Barclays, Virgin Money and Kensington Mortgages. 

Prior to that, they were relatively unheard of – but with government pressure unlikely to let up, green mortgages seem to be here to stay. 

Daniel Lee, principal broker at Hamilton Fraser Total Landlord Mortgages, said: This is clearly a condition which will become more prevalent, particularly if in the future mortgage lenders are required to track and annually disclose the average EPC rating of the properties they lend against. 

‘Landlords should take note of this and be looking at ways to make energy efficient improvements to their rental properties, not least so they can achieve the best mortgages rates, but also to protect the saleability and value of their investment.’ 

However, for many, they would rather sell up and leave the market altogether. 

‘I’ll be a holiday let owner instead’ 

Another landlord, who again wanted to be anonymous for fear of unnecessarily worrying his tenants, said: 

‘I am situated in Wales and have a mixture of commercial and residential properties.

‘I have already sold one house last year and will be selling another when it becomes vacant.

‘My reasons for wanting to get out are many, but over regulation in the sector is probably the main one.

The EPC rating rising to ‘C’ is going to hit many landlords hard, because of the ages of some of the properties, it is not economical (or even possible) to bring them up to the required standard, without having to spend considerable sums of money.

‘I am 65 now and I don’t want my benefactors to have a large inheritance tax bill to pay.

‘I have a farm in Monmouthshire with a listed barn and I am going to rent this out for holiday lets, as there is much less hassle and it is a lot more lucrative.’ 

What is happening to buy-to-let rates?

The average two and five-year fixed rates for buy-to-let mortgages are sitting at 2.98 per cent and 3.28 per cent, according to Moneyfacts.

While they have decreased compared to 2019, these are 0.37 per cent and 0.31 per cent higher respectively than a year ago.

Eleanor Williams from Moneyfacts said this was due to lender caution amid the pandemic. 

She added: ‘What is positive is the fact that the overall two-year fixed rate is lower now than in June 2019 – which means those coming off a two-year fixed deal may still find a better deal, depending on how much they have in equity and their circumstances.’

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Maurice Investments sell London office building for €30.3m (GB)

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Allsop, acting jointly alongside Anton Page, has completed the sale of the freehold of a Grade A workspace in Aldgate, central London, on behalf of Maurice Investments for €30.3m (£26m). Acquired by Meadow Partners, the price is equivalent to approximately €1120 (£960) per ft² and a net initial yield of 5%.

 

Wool + Tailor, 10-12 Alie Street E1, comprises 27,158ft² of Grade A office and ancillary accommodation over nine floors. It is within a three-minute walk of Aldgate station and a 15-minute walk of six further train and underground stations, including Whitechapel which is on the newly opened Elizabeth line, and is multi-let to five tenants. Maurice Investments had initially acquired the building in an off-market deal advised by Allsop, which also went on to conclude a successful leasing campaign alongside Anton Page.

 

Wool + Tailor was redeveloped in 2019 to include two additional floors and a new façade, with BREEAM “very good” and EPC A and B ratings. It features an eco-friendly biodiverse roof, cycle racks to accommodate up to 36 bikes, and a WiredScore Gold certification with fibre optic internet. Wool + Tailor further benefits from outstanding natural light throughout, which is enhanced by floor-to-ceiling heights of up to 3.3 metres, and a 7th floor communal business lounge with dual aspect terraces offering panoramic views of the City and beyond.

 

Matthew Millman, Partner at Allsop, said: “The sale of Wool + Tailor concludes a highly successful business plan for our client where we advised on the off-market acquisition, letting, then disposal of what has become one of the finest buildings in Aldgate. Wool + Tailor satisfies the requirements of the modern investor and occupier for ‘best in class’ office space with strong ESG credentials, excellent connectivity and plentiful nearby cafes, bars and restaurants.”

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AnaCap secures €59m loan for Paris office deal (FR)

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Tristan Capital Partners’ TIPS One “Income Plus” Real Estate Debt Fund has provided senior debt financing to funds advised by AnaCap Financial Partners, to support the €59.25m acquisition of South Station, a freehold office asset located in Massy, in the second ring of Paris. South Station is a high-quality property ideally located in Massy – the largest economic centre in the Southern Paris area – and is adjacent to the town’s main transport stations (RER and TGV). The asset is one of the most attractive buildings in the submarket offering modern A-grade office space with excellent amenities.

 

The sale and partial leaseback acquisition will see the vendor CGG, a geophysics specialist, remain as the majority tenant. Pramena Investment will act as the asset manager for the property.

 

Ashil Sodha, Director, Debt Investment at Tristan Capital Partners, said: “As TIPS One continues to diversify, we are pleased to have closed our first loan in France. We are focused on lending on high-quality assets with the right ESG characteristics and we believe this loan exemplifies this strategy well. We look forward to working alongside AnaCap and Pramena and supporting them in optimising their strategy for this asset.”

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Barratt and David Wilson invest €45.5m in UK resi market

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Harworth Group plc has sold two residential land parcel at its Waverley and Thoresby Vale developments to Barratt and David Wilson Homes, for a total consideration of €45.5m (£39m).

 

At Waverley in South Yorkshire, Harworth has competed a €33.8 (£29m) land sale which will see the delivery of approximately 450 homes, of which over 30% will be affordable. This represents Harworth’s largest-ever serviced residential land sale by number of plots. The new homes will represent Barratt and David Wilson Homes’ fifth phase at the site and will be situated adjacent to both Highwall Park and the Waverley Lake, benefitting from unique water frontage in an area of the development known as Waverley Waterfront. Construction will follow a bespoke design code, devised in partnership between Harworth and Barratt and David Wilson Homes, that complements the existing Waverley development while maximising the amenity value of the area’s waterfront location. The development will include a pedestrianised promenade, further enhancing the site’s placemaking and connectivity.

 

At Thoresby Vale in Nottinghamshire, Harworth has exchanged on the sale of serviced land capable of delivering 174 homes, for €11.6m (£10m). This represents the second phase of the Thoresby Vale development, following the sale of two land parcels at the site to Harron Homes and Barratt and David Wilson Homes in 2019 and 2020 respectively. Alongside the new homes, Barratt and David Wilson Homes will provide a new surface water attenuation pond and a multi-use path and associated landscaping, which will enhance connectivity and link to the site’s planned primary school and local centre, for which site preparation works are currently underway. The sales conclude an active first half for Harworth’s residential developments, during which over 100% of its budgeted residential land sales for the year were completed, exchanged or under offer, and it also launched its first single-family Build to Rent portfolio.

 

Andrew Blackshaw, Chief Operating Officer at Harworth, commented: “Barratt and David Wilson Homes is a trusted and valued partner to Harworth, and we are pleased to be developing our relationship with these two significant land sales. Harworth is particularly well-placed in volatile markets as our serviced land provides housebuilders with a product which is de-risked and ready to build on from day one. The acceleration of both our Waverley and Thoresby Vale sites will see Harworth stepping through its strategy to take advantage of the placemaking and levelling up that these schemes ultimately bring to these communities. In addition, these sales will enhance the maturation of these socially diverse neighbourhoods when delivered alongside our recently launched single family Build to Rent product, Project Spur.”

 

Ed Catchpole, Joint Regional Director for Yorkshire & Central at Harworth, added: “Barratt and David Wilson Homes has a proven track record of high-quality housing delivery at Harworth sites, and these transactions will help to further accelerate the build-out and placemaking at Waverley and Thoresby Vale. Both sites are also set to benefit from additional investment which will see the creation of new Build to Rent homes and local amenities.”

 

Mark Cotes, Managing Director at Barratt and David Wilson Homes North Midlands, said: “We’re thrilled to have secured the land for an extension to our Thoresby Vale development and will look forward to another opportunity to meet the growing demand for housing in Nottinghamshire. Our growing community in Edwinstowe will continue to provide new jobs for local people and we’ll be making further ecological and financial investments as the development progresses.”

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