Landlords across the UK are increasingly recognising the importance of green initiatives and taking steps towards making their properties more energy-efficient. However, despite this progress, there is still significant room for improvement as the sector continues to adapt to environmental challenges.
Recent data from Redwood Bank highlights a notable trend: nearly a quarter of landlords who are benefiting from specialist business loans are already managing energy-efficient properties. This shift is being driven by a combination of factors, including government regulations and the growing demand from tenants for more sustainable living environments. As landlords look to future-proof their portfolios, many are beginning to prioritise energy-efficient upgrades to meet both regulatory requirements and the expectations of environmentally-conscious tenants.
One of the key initiatives supporting this transition is Redwood Bank’s Green Reward scheme, which was launched at the end of 2023. This scheme has become especially popular among commercial property owners with assets that fall within the A-C EPC rating range, which is considered a benchmark for energy-efficient properties. The Green Reward scheme offers cashback incentives for those investing in energy-efficient improvements, making it an attractive option for landlords looking to reduce their carbon footprint and increase the sustainability of their properties.
According to the bank’s data, the Green Reward scheme has accounted for 22% of the bank’s loan volumes and 31% of its total loan value. This reflects a growing shift towards sustainability in the property market, with more landlords choosing to invest in energy-efficient upgrades as part of their long-term strategy. Additionally, the average loan size for Green Rewards is 36% higher than those for non-Green Rewards products, suggesting that landlords who are committed to green initiatives are willing to invest more heavily in these projects.
The increasing adoption of energy-efficient practices in the rental market is a positive sign, but there is still work to be done. As the demand for greener properties continues to rise, more landlords will likely follow suit, realising that sustainability is not only beneficial for the environment but also makes good financial sense in the long term.
Stricter energy efficiency regulations
Tom Worbey, the senior products manager at Redwood Bank, outlined the reasoning behind the launch of the Green Reward initiative, stating that with stricter energy efficiency regulations on the horizon, the company aimed to offer support to landlords who were already taking steps towards sustainability. He explained, “With stricter energy efficiency regulations on the horizon and tenants increasingly demanding comfortable and efficient homes, we wanted to support those landlords who were already hitting the mark by being energy-efficient.” This reflects a wider trend in the housing and property markets, where the growing demand for energy-efficient homes is being matched by regulatory changes that are pushing for a greener, more sustainable approach.
Worbey went on to explain that the Green Reward initiative was specifically designed to acknowledge and reward landlords who have already demonstrated their commitment to energy-efficient practices. “We launched the Green Reward to do exactly that – reward those who were already displaying their eco-credentials and we are delighted to see so many taking advantage,” he said. The initiative not only serves as a recognition of the eco-friendly actions taken by landlords but also as a call to action for others in the sector to consider improving the energy efficiency of their own properties.
In addition to recognising current efforts, the scheme encourages landlords to future-proof their properties ahead of stricter regulations. According to Worbey, landlords who act now to improve the energy efficiency of their properties will be in a better position to meet the upcoming Energy Performance Certificate (EPC) standards and avoid the costs associated with retrofitting properties later on. “Landlords who future-proof their properties now will stay ahead of EPC regulations and avoid costly retrofitting,” Worbey added. This forward-thinking approach not only safeguards landlords from potentially significant costs in the future but also ensures that their properties remain attractive to tenants who are increasingly seeking energy-efficient homes.
The Green Reward scheme offers a financial incentive to landlords through cashback on loans for properties that meet the energy efficiency criteria. Specifically, it is available for buy-to-let, semi-commercial, and commercial properties that have an EPC rating of A, B, or C, which are recognised as energy-efficient. The cashback varies between 0.20% and 0.50% of the loan, with the exact amount depending on the energy efficiency of the property. This is a significant incentive, especially as landlords are becoming more aware of the long-term financial and environmental benefits of improving energy performance in their properties.
The scheme provides an important opportunity for landlords to invest in their properties while also contributing to broader environmental goals. By offering financial rewards for improving the energy efficiency of buildings, the Green Reward initiative plays a role in encouraging a more sustainable property sector. Additionally, landlords who take part in the scheme are better positioned to comply with government regulations that are becoming more stringent, while also meeting the demands of an increasingly eco-conscious tenant market.
As more landlords opt into the Green Reward programme, it’s clear that there’s a growing shift towards sustainability in the UK property sector. The increasing focus on energy efficiency, both from regulators and tenants, is shaping the future of housing, with landlords who invest in greener initiatives benefiting from both the financial incentives provided by schemes like Green Reward and the long-term advantages of future-proofing their properties. This shift will likely continue to accelerate as the drive towards sustainability gains momentum across the industry.
Improved tenant satisfaction
Mr Worbey highlighted that landlords benefit not only from cashback but also from substantial reductions in their operating expenses. By embracing energy-efficient initiatives, landlords can significantly lower their utility bills and maintenance costs, which is particularly important as rising energy prices continue to impact many businesses. For those who are proactively adopting greener practices, these savings can be particularly valuable, ensuring their properties remain cost-effective over time.
In addition to the financial advantages, landlords who prioritise energy efficiency are also enhancing tenant satisfaction. “Embracing sustainability goes beyond meeting regulatory standards; it enhances property value and appeals to eco-conscious tenants,” Mr Worbey explained. In a rapidly changing rental market, tenants are increasingly looking for properties that align with their values, and sustainability has become a key deciding factor. By improving the energy efficiency of their homes, landlords are not only future-proofing their investments but also attracting a growing base of environmentally conscious tenants who are willing to pay a premium for eco-friendly homes.
The positive effects of adopting these green measures are evident not just in tenant retention and satisfaction, but in the overall property value. Energy-efficient properties often command higher rents, are less likely to suffer from void periods, and are more appealing to potential buyers if the landlord decides to sell.
The Green Reward scheme has received significant recognition for its role in encouraging landlords to embrace these sustainable practices. The product was shortlisted in the NACFB Commercial Lender Innovation category, a prestigious accolade within the industry. This recognition is a testament to how innovative financial products can be used to drive positive change in the property market. The scheme’s success signals a wider trend towards sustainability in the industry, with increasing numbers of landlords recognising the long-term benefits of investing in energy-efficient properties. As regulations become stricter and tenant expectations rise, the importance of green initiatives will only continue to grow, making this a crucial area for landlords to focus on.
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