A Green Premium: House buyers willing to pay almost 10 per cent more for energy efficient properties

A new report by Santander – Buying into the Green Homes Revolution – has found that a ‘green premium’ based on energy efficiency is emerging in the UK’s property market.  

The study(1) which surveyed more than 2,300 UK based homebuyers and owners, estate agents and mortgage brokers, found that buyers are placing an average 9.4 per cent premium on homes that have already been retrofitted. This equates to an average increase of £26,600 based on the average UK house price(2) of £283,000 – over twice as much as the average £10,000 it costs to make energy efficient upgrades to a property(3)

Estate agents also report that buyers are paying an average 15.5 per cent more for a home that meets high energy efficiency standards, with over a third (36 per cent) reporting buyers are paying more than 20 per cent extra in their area.  And the majority (79 per cent) say they are seeing more buyers ask about energy efficiency than they were twelve months ago.  

The study found that would-be buyers now rate energy efficiency as one of the most desirable features of a home. While there was a trend during the Covid-19 pandemic for buyers to want a bigger garden or home office, energy efficiency is now cited as more attractive than these features as rising energy costs become a concern.   

And when asked what they would be most likely to invest in for their home today, 36 per cent of people picked an energy efficient boiler while only 27 per cent chose the more traditional upgrade of a new kitchen.  The 2020 hot tub trend has also truly passed with only five per cent likely to invest in this. 

While the research found evidence that consumers are increasingly aware of the benefits of having and buying a green home, it also suggested a knowledge gap when it comes to understanding what they need to consider to make their homes more energy efficient.  

As part of its net zero aims, the UK Government has a stated aspirational target that all homes should have an EPC rating of C or above by 2035. Currently only one third of UK homes meets this target, meaning an estimated 19 million homes(4) need retrofitting. 

However, more than half (58 per cent) of respondents did not know what EPC (energy performance certificate) stood for, and three in five (60 per cent) people did not know the EPC rating of the property they currently live in.  Only 15 per cent of people would strongly agree that they have found it easy to access information about energy efficiency. 

The importance of getting to grips with an EPC is underlined by the fact that estate agents say, on average, it’s taking them up to four months longer to sell properties with a poor EPC rating.  

Graham Sellar, Head of Mortgages at Santander UK commented: “There appears to be a clear increase in the desirability of energy efficient properties as people face the reality of rapidly increasing energy bills, with today’s buyers more likely to pay a premium for a retrofit than a fitted kitchen.  

“But there is a huge amount of work to be done to ensure homeowners understand the changes they need to make and the importance of both the economic and environmental benefits of making them.  Lenders, government, construction companies and others in the housing industry need to come together to support people and policies that will drive forward widespread change.” 

Santander has put together five recommendations for Government to deliver the support needed to ensure net zero targets are met: 

  • Enhance the existing EPC ratings framework while working to develop a more robust and accurate energy performance certification scheme. EPC ratings need to be independently verified, more consumer friendly, and regularly updated, to allow timely data to be accessed from an easily accessible central database.  
  • Introduce a standardised toolkit backed by the Energy Savings Trust (EST) that could be given to consumers at every home financing and refinancing opportunity. This would be supported by a government-led awareness raising campaign to launch the introduction of the toolkit and signpost to it as a central source of information. 
  • Explore how taxation could be used as a lever to drive demand, for example Stamp Duty rebates for homebuyers who have invested in retrofitting property they have bought.  
  • A clear and realistic timeline for improving minimum energy efficiency standards (MEES) for domestic private rented and owner-occupied properties.  
  • Establish the skills infrastructure and capacity for retrofitting at the necessary scale. This should include introducing new qualification (e.g., T level) to teach the skills needed to carry out the retrofitting/decarbonisation of buildings, and supplement this with a kick starter scheme for green skills to equip newly qualified retrofitters with the necessary experience. A long-term Government commitment is necessary to give firms the confidence to invest in people and training. 
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