Home buyers likely to negotiate discounts to factor in green improvments that will cut energy costs

Home buyers looks set to demand discounts to factor in cost of green improvements

A new report from property portal Rightmove reveals that would-be home buyers are likely to try and negotiate asking price discounts to factor in the cost of making green improvements in the next ten years.

Making homes greener is a critical part of helping the UK to reach Net Zero by 2050, but there is a lack of understanding about what improvements to make and minimal financial incentives for people to act now. Four in ten home-owners have already made changes to improve their home, but of the remaining 59 per cent the biggest reasons for not doing so are that they don’t feel they need to make improvements (40%), or that the improvements are too expensive to make (33%). The overwhelmingly biggest motivator to make changes is to reduce their energy bills.

Rightmove analysis found that sellers who have already made changes that have improved the EPC rating of their home are pocketing as much as 16% extra on average when selling their home.

Buyers looking to go green

The study analysed over 200,000 homes listed on Rightmove that had sold twice, with an improved EPC rating the second time. Those who had upgraded their rating from an F to a C added an average of 16% to the price achieved for their home. Moving from an E to a C banked sellers an extra 8% on average, and moving from a D to a C resulted in an average of 4% extra.

Buyers are already becoming more conscious of green features when looking for their next home, with features such as solar panels and heat pumps climbing the rankings in Rightmove’s keyword sort tool. Searches for solar panels have risen from position 500 in November 2020 to position 98 in June 2022, and heat pumps have risen from 1,000 to 190. Plus, there are now 73% more green terms such as ‘sustainable’ and ‘low carbon’ being used by agents as selling points in their property descriptions on Rightmove compared with the start of 2020.

There are very early signs that better rated homes could sell more quickly than poorly rated ones. EPC B-rated houses were the fastest type of home to sell over the last few months (30 days), overtaking EPC D-rated houses for the first time (31 days), although the difference so far is only one day quicker. The average EPC rating of a home in the UK is a D, so the homes with the lowest ratings of an E to a G are likely to be the first to start seeing buyers trying to negotiate discounts.

However, agents report that as the experience of finding and falling in love with a home is an emotional one, it will very much vary depending on what else there is about the home to attract a buyer.

In the rental market, there are proposals from the government to introduce legislation to make landlords improve their homes up to an EPC rating of C. If this happens it is likely to exacerbate the already severely stock constrained market in the short-term as more landlords sell up, and increase rents for tenants. But it will help to improve the quality of rental homes in the long-term.

Rightmove’s Director of Property Science Tim Bannister says: “Improving a property’s green credentials is critically important as the UK strives to hit Net Zero. The immediate challenge is the sheer number of properties that are currently below an EPC rating of C and the costs involved to fix this. There has been much debate about what could happen in the future to homes with poor energy efficiency, and the government has said they will make sure these homes can still get mortgages. But I don’t think it would be a surprise if in ten years’ time we see that people taking out mortgages or remortgaging a home with the lowest EPC ratings find that they miss out on the best mortgage rates.

“We’ll also start to see buyers become much more aware of the green improvements that are needed, and factor this in when they consider how much to offer a seller. It’s likely to be a gradual rather than a swift change, but we can already see the green price premium when improvements are made. Of course, improvements that make a home more energy efficient often also means the condition improves, such as installing new windows. But the end result of making improvements is not just a refurbished home worth more money, it’s often also a greener home.

“It’s clear that many home-owners want to make improvements, but the complexity and costs of the changes means that people need more help and financial assistance to know which changes to make and when. We know saving on energy bills is the biggest motivator to make changes, and in future we’ll need to consider costs for cooling our homes as much as heating them, as we found during the recent heatwave. This opens up more questions about the best systems that people should be installing to futureproof their homes.

“If the government brings in legislation for landlords to improve their properties, and if the sums don’t add up to make the improvements, then some will sell up. This is especially likely among those with smaller portfolios and those who would need to make significant changes to cheaper homes. If a number do sell up then it could exacerbate what is already a severely stock-constrained rental market, increasing rents for available homes in the short-term, before the benefits of greener properties filter through.”

Strutt & Parker’s Head of Regional Estate Agency Kate Eales, says: “Where poor broadband became a common deal-breaker in recent years, good sustainability credentials are rising up the consideration list, especially in the face of rising energy prices. That said, houses are ultimately homes and character continues to hold huge value for many. What remains to be seen is how affordable and straightforward sustainable changes to period properties will become in the longer term, as this will ultimately help preserve the value of historic homes.

“If buying a home was purely a financial decision, a house with a strong EPC would be top of the list. But a purchase of a period home is often driven by the heart, and not just the head. EPCs create more transparency so buyers know what’s what when they become the custodian of an older home. We’re beginning to see increasing numbers of sustainable new homes and schemes built in a period style. These sustainable character homes have seen growing popularity in recent months – perhaps signalling a confluence of the nation’s adoration of quintessential looking houses with the rise in cost of living and greater eco-consciousness."