The challenge of improving the energy efficiency of our homes is enormous. We estimate that the cost to UK households of undertaking the energy efficiency improvements most commonly recommended in Energy Performance Certificates (EPCs) would be in the order of £330 billion.

To date, the problem has been that returns on this investment have not been exactly compelling from a financial perspective. In 2019-20, the English Housing Survey suggested that the payback period on the £19,000 required to take the average home with an EPC rating of F or G to grade C was 14 years. That rose to 34 years once the quick wins had been delivered and the challenge was to get from a D to a C rating. For larger properties, the upfront outlay will, in most cases, be some way above the average.

However, the payback equation could change rapidly. Energy costs are rising uncomfortably quickly. While the real pain of this will be felt by less affluent households, it is not something that high earners are totally immune to. Those with an income of more than £100,000 consumed 73% more gas and 66% more electricity than the average household in 2019, according to the Department for Business, Energy & Industrial Strategy.

The future role of lending

Perhaps more pertinently, policymakers who are focussed on improving the energy efficiency of the nation’s housing stock have landed on the notion that mortgage lenders “are uniquely placed” to influence the behaviour of home-owners “at critical trigger points such as home purchase, renovation and re-mortgage”.

Proposals to set banks and building societies targets for lending to directly fund energy performance works are one thing. But a requirement for lenders to disclose the EPC profile of their loan book each year and hit targets to progressively improve it are another; especially with a stated ambition to get the average mortgaged property to EPC C by 2030.

The game changes as soon as the availability of mortgage finance, the terms upon which it can be obtained and, ultimately, its cost become dependent on the energy efficiency of the property on which it is secured. That would take the concept of green finance to a whole new level, from a nice-to-have to a prerequisite.

Increasingly important to buyers

And it would appear this is starting to feed into buyers’ thinking. In our April survey of buyers and sellers of prime property, one third of respondents told us that the EPC rating of a property had become more important in their decision-making over the past year. Only 32% said it was not an important factor in their choice of a new home.

It would be easy to think that the efficiency credentials of a home would be more important to younger, more environmentally aware households. However, the reality is that the issue is as important to people in their 60s as those in their 30s. So, increasingly, it looks like investing in the energy performance of our homes will become as much about future-proofing its value as generating a return from savings in its running costs.

Period properties

Owners of period housing stock perhaps face the biggest energy efficiency challenge.

Our analysis of recently issued EPCs tells us that 38% of homes built pre-1930 have a lowly EPC rating of E, F or G. That rises to 46% of homes constructed prior to 1900.

Owners of listed properties face their own unique dilemma. Since 2013, an EPC is generally required whenever a property is marketed for sale or letting. Listed properties have been exempt from this requirement but only where “compliance with minimum energy performance requirements would unacceptably alter their character of appearance”, a somewhat inconveniently subjective concession.

Exemption from a requirement to obtain a certificate brings with it an exemption from existing regulations around minimum energy efficiency standards, including those needed to let a property. But as buyer expectations regarding the eco-credentials of prime homes increase and the green finance market evolves, so too will the long-term benefit of investing in sympathetic improvements. The challenge for many will be in identifying what works best for the home they live in.

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