Memorandum submitted by the Paragon Group
of Companies
SUMMARY
1. Paragon welcomes the opportunity to submit
evidence to the Communities and Local Government Select Committee's
inquiry into the existing housing stock and climate change. This
is a timely inquiry given the roll-out of Energy Performance Certificates
across the housing market.
2. Paragon is one of the UK's largest providers
of Prime buy-to-let (BTL) mortgages to professional and investor
landlords. We are the UK's largest lender to professional landlords
and the third largest BTL lender with a 10% market share. We launched
our first specifically targeted buy-to-let mortgages in 1995 and
since then have increasingly specialised in this market. We are
a leading member of the Council of Mortgage Lenders and have played
a central role in its BTL working group.
3. The key points of our submission are:
— Energy Performance Certificates (EPCs)
have the potential to play a valuable role in boosting energy
efficiency and reducing carbon dioxide emissions across the housing
sector.
— Whilst much of the debate surrounding
EPCs has focused primarily on the home sales sector, the certificates
will also have a direct impact on the private lettings process.
— It is vital that clear guidance on
how EPCs will be introduced into the private rented sector is
issued as early as possible.
— Sufficient steps should also be taken
to properly publicise to landlords both the EPC regime and the
financial incentives already available to landlords who invest
in energy saving measures.
OVERVIEW
4. Our comments are focused on the forthcoming
implementation of Energy Performance Certificates (EPCs) in the
private rented sector—the key Government policy aimed at
promoting and delivering greater energy efficiency in this sector—and
the Government allowances available to landlords who make energy
saving improvements to their properties.
5. Legislation that encourages measures
to improve the quality of the UK's housing stock in a proportionate
and practical way is to be welcomed. The quality of stock in the
private rented sector has been improved in the past by both regulation
and deregulation that has encouraged market forces (such as the
abolition of rent controls). In some areas, such as energy efficiency,
however, additional incentives for landlords may be necessary.
6. EPCs are currently being rolled out as
the key element of the Government's Home Information Pack policy,
and have the potential to play a valuable role in boosting energy
efficiency and reducing carbon dioxide emissions across the housing
sector. Energy efficiency is just as important in the rented sector
as in the sales sector: 2.8 million dwellings in the UK are in
the private rented sector, representing 11% of the total housing
stock.
7. All private landlords will be required
to provide an EPC for their property, free of charge, to prospective
tenants from 1 October 2008. The certificates, which will give
rented homes a fridge-style rating of A-G based on their energy
efficiency, will be accompanied by recommendation reports outlining
steps that could be taken to improve the existing energy efficiency
rating.
8. In order for the certificates to make
a positive contribution to energy efficiency in the private rented
sector, the EPC policy must be implemented in a simple and straightforward
way that provides a positive incentive for landlords to improve
the energy efficiency of their properties whilst minimising new
bureaucracy and costs.
POLICY ISSUES
Guidance
9. It is crucial that there is sufficient
lead-in time for landlords, letting agents and local authorities
to prepare for the introduction of EPCs into the private rented
sector and for Government to adequately promote them.
10. As the experience of implementing Home
Information Packs and EPCs in the sales sector has shown, a lack
of clarity about how the policy will be implemented, which properties
will be affected and at what point, and which individuals will
be authorised to provide the necessary documentation, has the
potential to cause confusion in the market.
11. For the EPC policy to work in practice
in the private rented sector, landlords must be clear about their
new obligations. It is vital that guidance on how the EPCs will
be introduced into the private lettings process is issued as early
as possible. This should be subject to full consultation to allow
industry to engage fully and prepare for the legislation effectively.
12. In order to encourage a smooth implementation
of the policy in the private rented sector, and to ensure that
landlords are fully aware of their obligations, the guidance should
cover key issues such as:
ii. information on how landlords can obtain
EPCs and the associated recommendation reports;
iii. how and at what point landlords should
provide EPCs to prospective tenants;
iv. any circumstances in which landlords
will not be required to provide an EPC;
v. how local authorities will be expected
to enforce the EPC regime; and
vi. details of the penalties that will apply
if landlords do not comply.
Publicity
13. Public debate surrounding HIPs and EPCs
has been focussed on the home buying and selling process. There
has been little discussion of the implementation of EPCs in the
private rented sector. This is reflected in the very low level
of awareness of this reform across the sector.
14. Where other regulatory reforms affecting
the private rented sector were not publicised as effectively or
widely as they might have been—such as, for example, the
introduction of tenancy deposit schemes—landlords have been
unaware of their responsibilities and as a consequence have been
late adapting to regulatory change.
15. It is therefore imperative that sufficient
steps are taken at an early stage to publicise the EPC regime.
This will be vital to ensure that both landlords and local authorities
are fully aware of their obligations, which will in turn help
the new regime come into force smoothly.
Incentivising Landlords
16. Information about the energy efficiency
of private rented properties will be useful to prospective tenants,
particularly given the link to potential fuel bills, but it is
questionable whether this information will be considered as important
as factors such as the location of the property, its size and
proximity to transport links. Furthermore, while landlords are
required to pay for improvements to their property to boost their
EPC ratings, it is the tenant that ultimately benefits in the
form of lower heating bills. Consequently, the introduction of
EPCs may themselves only have a limited impact on improving energy
efficiency.
17. Ensuring that adequate incentives are
in place to encourage landlords to carry out the improvements
specified in their EPC recommendation reports will therefore be
critical for the policy to succeed in improving energy efficiency
in the private rented sector. The most appropriate way of incentivising
landlords to improve the energy efficiency of their properties
is for the Department for Communities and Local Government to
work closely with HM Treasury to publicise the new EPC requirements
and the existing Landlords Energy Savings Allowance (LESA) in
tandem.
18. The LESA provides landlords with an
allowance of up to £1,500 per property to acquire and install
particular energy savings measures, including cavity wall and
loft insulation, solid wall insulation, hot water system insulation,
draught proofing, and floor insulation. We would urge the Committee
to consider what steps the Government could take to jointly promote
the EPC and LESA, and also whether there is a case for increasing
the LESA allowance to provide a greater incentive for landlords
to undertake energy efficiency improvements.
19. Any failure to promote the EPC and LESA
together would be a significant missed opportunity to incentivise
landlords and improve the energy efficiency of the private rented
sector. Conversely, if landlords are incentivised to improve the
energy efficiency of their properties through a broadened awareness
of the LESA, they may in time come to view the EPC as a tool with
which to market to tenants the improvements they have undertaken.
A joined-up approach in this policy area encompassing both the
DCLG and HMT could stimulate genuine energy efficiency improvements
across the private rented sector.
CONCLUSION
20. EPCs will only be judged a success in
the private rented sector if their introduction encourages more
landlords to improve the energy efficiency of their properties.
21. Sufficient steps must be taken by Government,
working together with industry bodies, to raise awareness amongst
the landlord community about the impending reform well in advance
of the implementation date. Publicity—of both the introduction
of EPCs and the existing financial incentives available to landlords
to upgrade their properties—will be crucial in this regard.
22. The policy has the potential, if implemented
appropriately and proportionately, to make a real contribution
to improving energy efficiency in the private rented sector. Paragon
looks forward to engaging further with the DCLG as it takes forward
guidance and policy implementation in this important area.
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