It seems that Minimum Energy Efficiency Standards (MEES) could soon be making a comeback to push UK housing to higher standards of energy efficiency.
Rishi Sunak had scrapped plans for MEES for the PRS sector last year, but with the upcoming general election in July 2024 the Labour Party, Liberal Democrats, and Green Party have all committed to reinstate minimum energy efficiency standards (MEES) legislation as part of their election manifestos.
Sunak’s key claim in rowing back on net zero targets (including energy efficiency standards) was that it would save households money during the cost of living crisis.
This claim, coupled with the regular fear mongering headlines that suggest eye-watering average retrofit costs of £35k, £69k, £80k, has left many homeowners and property sector professionals with the view that improving home energy efficiency is simply too expensive to bother with – slowing down the pace of retrofits and property decarbonisation.
In reality, these cost estimates are typically wildly inaccurate, using unreliable and out-of-date data on property emissions to come to incorrect conclusions.
To prove this point, we recently analysed 200,000 mortgaged homes that are currently below an EPC C standard to assess the cost needed to achieve EPC C against the value of the asset.
The key finding? The cost to EPC C is actually less than 5% of the asset value for the vast majority of mortgaged homes.
The analysis found that 84% of residential properties in the average mortgage portfolio are able to achieve a minimum EPC C rating through energy efficiency improvements costing less than 5% of the property value. This leaves only 16% of homeowners with a less affordable route to EPC C – brilliant news in the battle against high energy bills and carbon emissions.
Furthermore, over half of the 84% could achieve EPC C at a retrofit cost of less than £5,000, and 18% of properties would require under £750 in energy efficiency improvements.
These estimated costs of retrofit above have been determined using Kamma’s enhanced dataset for property energy efficiency and carbon emissions instead of relying solely on the retrofit recommendations and estimated costs found on a home’s EPC.
The EPC methodology uses out-of-date cost baselines for energy prices and retrofit installation costs, giving estimated retrofit costs and ROI that are often much higher than the real costs today. Kamma’s methodology accounts for this by adjusting the data to reflect up-to-date energy prices and installation costs, for a much more accurate view of retrofit spend.
Most home retrofit planning tools on the market today (including those available white label on mortgage lender websites) use EPCs as the sole data source and so reflect those inaccurate retrofit costs to users – leading to the typical scare narrative of sky-high typical retrofit costs seen in the headlines highlighted earlier in this article. Our own Retrofit Explorer tool uses our enhanced data to enable a cost optimised approach to retrofit, improving accuracy and encouraging more homeowners to retrofit.
In a previous survey we conducted to explore the budget that homeowners have available to spend on energy efficiency improvements, we found that only 29% of homeowners could budget £10,000 on retrofit whereas 75% could budget £2,500.
This new analysis, therefore, is an encouraging indication that the benefits of an energy efficient home can be unlocked for many homeowners within a realistic budget – reducing energy bills, making homes healthier and more comfortable, reducing carbon emissions, and increasing resale value too. Of course, retrofit financing by mortgage lenders can further support homeowners with covering the upfront costs of retrofit.
“Out-of-date retrofit cost estimates are holding back progress across the whole property industry. Most lenders and homeowners rely on retrofit recommendations, installation cost estimates, and energy bill saving estimates from the property’s EPC certificate, but EPCs use cost baselines that are over a decade out of date. Better data on property carbon emissions overcomes the perceived cost barrier, increases action and unlocks the benefits of retrofit for homeowners and lenders alike.”
Orla Shields, CEO of Kamma
The link with property value is a tantalising prospect for mortgage lenders too: any increase in property value improves LTV, reduces risk, and could even reduce capital provisions.
Furthermore, encouraging customer retrofits also lowers affordability risks and accelerates lender progress towards net zero targets, whilst also opening new lending opportunities via innovative products like retrofit loans or equity release for retrofit.
“It’s not just homeowners that stand to benefit from retrofitting. Insulating homes reduces bills and insulates lenders from the increased risks associated with lending on under-performing homes. Changing regulations and changing buyer preferences both provide good reasons to act. With better data better choices can be made.”
Orla Shields, CEO of Kamma
This data and analysis was first published as a press release in June 2024, with coverage from The Intermediary, Mortgage Solutions, Introducer Today, Mortgage Introducer, and Property 118.
