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House prices fail to reflect energy efficiency ratings

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The value of a UK home carrying the top ‘A’ energy-efficiency rating is currently just 1.7% higher on average than an equivalent home with a typical ‘D’ rating.

According to research carried out by the UK’s largest building society, Nationwide, there is only a 1.7% house price premium for the most energy-efficient properties compared to an average home,

The worst-rated properties attract a small discount compared to a D rated property.

Nationwide’s analysis suggests that a more energy efficient property rated A or B attracts a modest premium of 1.7% compared to a similar property rated D (the most commonly occurring rating). There is little difference for properties rated C or E compared with D, as shown in the chart.

There is a more noticeable discount for properties rated F or G – the lowest energy efficient ratings. Indeed, an F or G rated home is valued 3.5% lower than a similar D rated property.

Andrew Harvey, Nationwide’s senior economist, said: “Decarbonising and adapting the UK’s housing stock is critical if the UK is to meet its 2050 emissions targets, especially given that the housing stock accounts for around 15% of the UK’s total carbon emissions.

“With this in mind, we used our house price data to explore the extent to which owner occupiers pay a premium or discount for a home due to its energy performance rating.

“Overall, our research suggests that, for now at least, energy efficiency has only a modest influence on house prices for owner occupiers, where an impact is only really evident for the best and worst energy efficiency ratings.

“However, the value that people attach to energy efficiency is likely to change over time, especially if the government takes measures to incentivise greater energy efficiency in future to help ensure the UK meets its climate change obligations.

How energy efficient are our homes?

Energy efficiency of the UK’s housing stock is gradually improving, said Nationwide. The latest data (2019) shows 40% of the housing stock is now rated C or higher, up from 14% of the stock in 2009.

The Government aims to update as many homes as possible to energy efficiency rating C by 2035 ‘where practical, cost-effective and affordable’. It also aims for all fuel poor households, and as many rented homes as possible, to reach the same standard by 2030.

Harvey said: “Over the past 10 years energy efficiency has improved significantly thanks to the higher energy rating of newly-built properties, and the improvements carried out on many existing homes, such as loft and cavity wall insulation.

“Nevertheless, this means that 60% of the housing stock is still rated D or below.

“As noted above, newly built properties typically have a much higher EPC rating (94% are rated C or above), although the stock increases very slowly (typically by c1% per annum). However it is important to note that, while they are energy efficient once built, a significant proportion of new homes’ carbon footprint (between 25% and 50%) relates to its construction.”