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Energy Efficiency Proposals and their potential cost to Home Owners in Scotland

Posted: 22nd January 2020

The impact we have on the environment around us has been at the forefront of most people’s minds and heavily covered in the media over the last twelve months. The Scottish Government has also announced ambitious targets for Scotland to be carbon neutral by 2045. It seems that home owners will now be expected to contribute towards this goal.

The Scottish Government has published a consultation document entitled “Energy Efficient Scotland – Improving energy efficiency in owner occupied homes.

The main proposals of the consultation are as follows:

  • A legally binding energy efficient standard would be set for owner occupied homes
  • An owner-occupied home would have met that standard if its Energy Efficient Rating (EER) achieved in the Energy Performance Certificate (EPC) is band “C” or above. The Home Report provided by a seller when a property is placed on the market for sale already includes an EPC. (Most homeowners would, therefore, be able to check the EER on their existing property)
  • The standard would have to be met from 2024 onwards for owner occupied properties (a phased introduction for private rented housing will come in more quickly – 2020). Properties would only be assessed to check if they have met the standard when certain “trigger points” are met.
  • The proposed trigger points are (a) when the property is sold or transferred to a new owner, for example if the property is inherited, and (b) when a “major renovation” of the property has been carried out.
  • If the property being sold did not already meet the band “C” standard and the seller could not, or did not want to upgrade it before selling the property, the obligation to meet the standard would be passed on to the buyer.
  • If the obligation had been passed on to the buyer, then the buyer would have a set period of time (12 months is the suggested timescale) to upgrade the property and then obtain an updated EPC to demonstrate that the standard had been.
  • What is meant by “Major Renovation” has not been defined in the consultation. One possible outcome proposed is that if a home owner applies for a Building Warrant to alter their home, a condition of the Building Warrant being granted might be that “consequential improvements” are made to improve energy efficiency in other parts of the property – not just the part of the property being altered.
  • If a home owner does not upgrade the property to comply with the standard then possible sanctions suggested include a fine, tax penalties, or additional charges. There is also the possibility that rather than being a one-off penalty, penalties could be imposed until the property meets the standard.
  • Some consideration is given to properties that cannot meet the band “C” standard if it would not be “technically feasible”. One would imagine that there are limited energy efficiency measures that could be introduced to a farm cottage built in the 1800s or a listed Georgian townhouse in the New Town of Edinburgh. If it is not technically feasible to increase the EER to a band “C” then the home owner might be able to apply for an exemption. The exemption might be for a fixed period of time (as technologies improve over time, it may actually become possible to raise the EER of these types of properties).
  • Cost-Effectiveness of any upgrade works would also have to be considered.
  • Home owners would be expected to pay for any energy efficiency upgrades to their property, but some financial assistance might be available from the Scottish Government in certain cases.

The estimated cost to bring all private residential homes in Scotland is £6billion. It is undoubtedly an extremely noble aim to increase the energy efficiency of the housing stock in Scotland but should home owners be compelled to fund this. The general consensus in the media at present is that we are at a tipping point where decisive action needs to be taken if we are to arrest the negative impacts of climate change globally. We must all do our part but are the proposals in their current form the best way to achieve the aim?

Before Home Reports were introduced in 2008 the Scottish Government said they would encourage home owners to improve the condition of their properties if there was a category 2 or 3 in their Home Report. It is extremely rare that a seller would have repairs carried out on their property, obtain an updated Home Report and then place their property on the market for sale. I do not believe that home owners placing their home on the market for sale would behave any differently if their home was Band “D” or below in their EPC. If nothing else, if a seller pays to upgrade their existing home prior to their sale but the seller of their new home is unable to do so, then this homeowner would have to pay to upgrade two properties.

If a buyer assumes the responsibility to upgrade the property rather than the seller as well as giving up the time in their busy lives to upgrade the property they would face some financial penalty if they fail to do this. A buyer already has to allocate a sizeable portion of their budget when moving home for things such as Land and Buildings Transaction Tax, the deposit for their mortgage, furniture, re-decoration, legal fees, and removal costs, etc. The consultation document says that a buyer could reduce the price that they offer to account for the cost of any upgrades to improve the energy efficiency of a home. Whilst that may well be the case, mortgage lenders base their lending on a percentage of the purchase price of a property or the value of the property, whichever is the lower.

So, for example, if a buyer has applied for a 90% mortgage to buy a property for a home valued at £200,000 and the Home Report indicates that £10,000 or works would be required to upgrade the property. If the buyer successfully offers £190,000, then they will only be able to borrow 90% of £190,000, i.e. £171,000. This means that their deposit for their mortgage is £19,000 but they still have to find the £10,000 to carry out the energy efficiency upgrades so that the property reaches band “C”. If the seller had already carried out the energy efficiency upgrade, then the buyer would be able to offer £200,000 and would only require £20,000 rather than £29,000 in order to buy the property. However, for the reasons above, I do not believe that sellers will routinely upgrade their existing homes. It is overly simplistic to suggest that a buyer could simply reduce the price offered to offset the cost of the energy efficiency upgrades.

I appreciate that the Scottish Government has a finite budget but this does feel like the Scottish Government is using a stick rather than a carrot to incentivise home owners to comply. Might they consider a rebate on the Land and Buildings Transaction Tax paid at the point of purchasing the property equivalent to the cost of the energy efficiency upgrades or a reduction in Council tax for a set period of time?

If you wish to express your views about this consultation, it is open until 26 March 2020.

If you have any questions about any of the points raised in this article then please email graham.keith@blackadders.co.uk.

Graham Keith, Residential Director
Residential
Blackadders LLP
@EdinGrahamKeith

www.blackadders.co.uk 

 

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