Green Deal for Landlords
Brings Threats and Opportunities
Many landlords are adopting a wait and see approach to the Green Deal, which launched on Monday. In my opinion this is probably a wise strategy.
What is the Green Deal?
The Green Deal is a way of paying for energy saving improvements to your buy-to-let property without having to pay for the works up front. The cost is effectively amortised over a period of several years in a relatively low, fixed interest rate loan. Paid back through the electricity bill associated with the property. Current legislation requires landlords to get their tenants permission, and like wise the tenant, requires the landlords permission before having the Green Deal assessment and any works done.
What are the opportunities for the landlord?
Let’s not forget, despite the cautionary approach from many landlords; the Green Deal presents serious opportunities for environmentally friendly and energy efficient improvements to buy-to-let property. Improvements that could increase both the rental properties capital value and its marketability prospective tenants. But does this assertion stand up to serious scrutiny?
Will the Green Deal add value?
The current Green Deal allows up to 45 types of improvements to a buy-to-let property. From double glazing to solar panels. These improvements can all cost thousands, if not tens of thousands to implement. Therefore, in theory, they should do the same to the value of the property? Well, not necessarily so. Whilst many buyers are attracted by energy saving improvements, such as double glazing and solar panels; they, along with the valuers responsible for valuing properties for mortgage companies and estate agents, tend not to add much, if anything, to the value and ultimately the price that buyers are prepared to pay. This is one of the stumbling blocks of the Green Deal. Tenants and potential purchasers may appreciate the energy saving improvements. Which may in turn make the property easier to sell or rent out. But very rarely, will the capital outlay be reflected in the value of the property, in the same way a loft conversion, extension or even a new kitchen or bathroom would.
A recent RICS consultation paper has illustrated some of the issues of environmental improvements in valuing a property, and highlights the fact that they are likely to be only attractive to a very limited sector of the house buying market.
Threats from the Green Deal
As well as opportunities, there are inevitably threats to a landlords buy-to-let business from taking out a Green Deal loan.
Like any new scheme, many of these threats are still anecdotal and theoretical, but they are non the less very real. The Green Deal like most government backed schemes, requiresa landlord use one of the small number of approved contractors. This means that there is no scope for a landlord to use a tried and tested, and ‘cheap’ contractor of their choice. The result is, that any advantage gained by deferring payment may well be lostin the higher costs of the works. Another potential drawback, is the effect of the financial charge or levy on future lettings. Any new tenant will be responsible for paying the charge, and the increased charges paid through their electricity provider. In a straight choice, will tenants opt for the rental property without the charge, or will they demand a lower rent to compensate them for the higher payments. This is still unproven. If a landlord decides to sell a property, will this charge deter potential buyers and/or depress the price?
Is it Compulsory?
The answer is, not yet. However, the proposals are that after 2016 landlords will be unable to refuse any reasonable requests from their tenants to sign up for the scheme. Furthermore, under new legislation, by 2018 landlords with poorly rated properties (F or G rated) will be unable to let their property. They will literally be left out in the cold. This smacks of one rule for homeowners, and one for landlords. Will the government condemn owner occupied properties in the same way? I very much doubt it!
Wait and See Approach
Like many landlords, I recognise that I could do more in improving the energy efficiency of my properties. I have yet to be convinced as to whether I wish to sign up for scheme. I need to know far more about the exact interest rate, pay back terms, and legal implications about letting and owning a property with a legal charge on it such as a Green Deal loan. The devil as they say is in the detail, and until more is revealed I’m far happier to use some of my significant rental profits to fund the environmental improvements and thereby avoid any onerous conditions that may accompany the Green Deal.